Brits could see their take-home pay reduced further under plans to increase pension savings, new research suggests. The Institute of Fiscal Studies (IFS) looked into what could happen if pension contribution rules were changed.
Currently, employers must contribute at least 3% of qualifying earnings to pensions. In 2024, 28% of private sector workers only received this contribution from employers. This warning comes as 15 million Brits are believed to be saving too little to maintain their standard of living in retirement.
Potential impact on take-home pay
Should minimum pension contributions go up to 12% and the upper earnings limit extended from £50,270 to £65,000, take-home pay could be reduced by 1.2%. If this change was applied from the first pound someone earned, the lowest-earning third of Brits could see their take-home pay fall by 4%.
The findings come as pensions consultancy Hymans Robertson separately warned that significant numbers of employees could be at risk of falling short in retirement.
Employer costs and retirement adequacy
Hymans Robertson warned that increasing pension contributions could raise costs for employers without necessarily solving the retirement savings problem for every group of workers.
Mark Stansfield, senior actuarial consultant at the firm, said: "Retirement adequacy is increasingly becoming a business issue, not just a pensions issue. Many employers are already dealing with the effects of employee financial stress and changing working and retirement patterns, all of which can impact productivity, workforce planning and long-term business performance."
Hannah English, head of DC corporate consulting at Hymans Robertson, said workers are already having to balance saving for later life with their current finances. She said: "The question is not simply whether contributions should rise, but whether current support is helping different groups achieve better retirement outcomes in a sustainable and fair way."
