Productivity's impact on pensions

By Charles Cotton, Adviser - Pay and Reward, @CharlesMCotton

The CIPD’s latest survey, Employee Outlook: Focus on employee attitudes to pay and pensions,” finds that the average combined pension contribution to a defined contribution plan is 10%, 2% higher than the 8% minimum required by automatic enrolment from October 2018.

 However, this figure is based on members who are employed in workplaces with a tradition of pension provision. The concern is whether this average will start to decline as more individuals working for SMEs start to be enrolled.

 Table: Employee and employer contributions to DC as a proportion of salary (%)

Percentage of base pay

Employee contribution

Employer contribution

It is non-contributory

6

-

0%

-

3

1%

9

10

2-3%

25

18

4-6%

34

37

7-10%

14

21

11% or more

7

8

Don’t know

6

4

 If workers are going to be able retire from the workforce in comfort then both employees and employers will need to contribute more to workplace pensions. Yet in 2013, our research indicated that just under a fifth of workers surveyed had seen their salary match or better the rate of inflation.

 Looking at 2014, employees and employers do not think that pay growth will be much more than 2%. Until workers see their real salaries rise, they won’t be able to increase their contributions and until productivity rises, employers won’t be able to afford to increase pay rates or raise pension contributions. Boosting UK performance is key to securing a better future for all: once this happens then we can start to worry about DC funds, charges and transparency.

 One challenge to boosting performance is that according to the employees surveyed, most of their employers are poor at assessing individual or collective performance. Another concern is that many workers do not think that their employer gives them the training to be able to do their job effectively, let alone to be able to advance to a higher-skilled role. Unless we see a greater investment in employee performance management and development, it is unlikely that we will see a sustainable increase in long-term productivity.

 The full research is available to download here

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