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Employer pension contributions rise as gender gaps narrow, IFS finds

Average employer contributions for all private sector employees, including those not saving in a workplace pension, reached 5.1% in 2024. 

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Employer pension contributions rise as gender gaps narrow, IFS finds
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Employer pension contributions have risen since the mid-2010s, after dropping in the late 2000s and early 2010s, according to the latest report from the Institute for Fiscal Studies (IFS). 

Average employer contributions for all private sector employees, including those not saving in a workplace pension, fell from 4.2% of total earnings in 2005 to a low of 3.4% in 2012. 

As automatic enrolment was rolled out and minimum contribution rates increased, the average climbed again, reaching 5.1% in 2024. 

Gaps in average employer contributions between groups have narrowed. 

Women’s average rate was 0.7% below men’s in 2005, but the gap was just 0.1% in 2024.

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In 2024, 28% of private sector employees saving in a defined contribution (DC) pension received the minimum employer contribution of 3% of qualifying pay, while 31% received at least 6% of gross pay. 

Among those aged 25 to 59 saving in DC pensions, 66% are on track to reach their target replacement rate. 

Raising minimum rates to 12% on qualifying earnings of £6,240 to £65,000 would push this up by 8 percentage points to 74%, with a bigger effect for younger workers who are in the system longer. 

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91% are already projected to reach the minimum retirement living standard, so even large reforms would have limited effect on this.

Robert Cochran, retirement expert at Scottish Widows, said: “These findings from the IFS reinforce what many in the industry have been saying for some time – while auto-enrolment has transformed retirement saving in the UK, minimum contribution rates alone aren’t enough to help most people achieve a comfortable retirement.

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“Our latest Retirement Report found that 12.2m people are still at risk of falling short of a minimum lifestyle in retirement, but that many want to tackle the problem. 

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“Two-thirds (65%) of UK workers said they would support an increase in minimum employer pension contributions, and half (50%) say they would increase their own contributions if employers also paid more.”

Cochran added: “The appetite for these changes isn’t unfounded; our modelling shows that raising total contribution rates from 8% to 12% on the first £30,000 of salaries could increase projected retirement pots by an average of £40,000. 

“When paired with better employee understanding and engagement of workplace pension schemes, sharing the burden, shares the load and changes like these could really positively impact people’s futures.”

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