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Saturday, May 31, 2025

More people leaving workplace pension schemes, TUC warns

More people leaving workplace pension schemes, TUC warns

Growing numbers cannot afford to save for retirement, prompting calls to increase employer contributions
Growing numbers of workers are cutting their workplace pension contributions or opting out of schemes entirely because they cannot afford payments – prompting calls for employers to increase the amounts they pay in.

With real wages falling and bills rising sharply, people across the country are looking for ways to reduce spending and supplement their incomes, and the TUC said it was hearing about staff in both the public and private sectors who had concluded they could not afford to save for retirement at the moment.

“Based on what our unions are telling us, anecdotally they are saying quite a lot of people are having to leave schemes,” a spokesperson for the trade union said. “That is public sector and private sector … It’s something we’re hearing quite a lot from the public sector unions.”

Its warnings follow data released in August indicating that the number of people choosing to opt out of their company pension scheme increased by almost a third between March and July this year.

The figures were issued by Penfold, a digital pensions platform used by private savers, the self-employed, company directors and businesses.

About 10% of people quit their workplace scheme, and the TUC said Penfold’s findings – which would translate into a two to three percentage-point increase in opt-out rates, lifting them to about 12%-13% – appeared broadly consistent with what it was hearing.

The reports have already led to calls for the government and the pensions industry to work together to come up with a solution to avoid people being left short at retirement.

Investment advisers say workers thinking of quitting their scheme need to think very carefully before jumping ship. Someone who opts out is essentially giving up the pension contributions from their employer, which effectively amounts to “a voluntary pay cut”, said Tom Selby, head of retirement policy at investment firm AJ Bell. “Furthermore, you will miss out on the upfront boost provided by pension tax relief,” he added.

Tisa (the Investing and Saving Alliance), a membership organisation for UK financial firms, said: “In times like these, reducing or opting out of pension contributions is unsurprising, and it is easy and understandable to forget about the long term.”

Renny Biggins, head of retirement at Tisa, said possible solutions it was proposing included increasing the amount that employers had to pay in under the UK’s auto-enrolment workplace pension regime from 3% of earnings to 6%, in order to allow staff to cut their contributions and release some money to supplement their disposable income.

Alternatively, employers could opt to continue paying pension contributions while allowing their workers to take a temporary contribution holiday.

“We recognise there are immediate needs for people to provide for their families, but we are nonetheless concerned that if people decide to reduce or opt out of their pension now, there will be consequences in the future,” said Biggins.

Jack Jones, pensions policy officer at the TUC, said: “Our longer-term policy target is for increased employer contributions.”

National Employment Savings Trust (Nest), a publicly owned pension scheme set up by the government which now has 11.2 million members, said the opt-out rate for newly enrolled workers had largely remained stable throughout the pandemic and was currently at 10.2%.

Nest said it had seen a very small increase in the number of members becoming inactive, which included people who had chosen to stop paying in, but that it could not say if this was due to increases in the cost of living.
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