Over nine in ten firms hit by Covid maintained commitment to competitive staff pensions – CBI/Mercer Pensions Survey 2021

The vast majority of firms with defined contribution schemes did not reduce their pension contributions during the pandemic despite the difficulties of COVID-19 (92%), according to the latest CBI/Mercer Pensions Survey.

Most employers (86%) overwhelmingly continue to see a strong business case for providing competitive workplace pensions, with the same proportion believing that they have a moral obligation to help staff to save for retirement.

This year’s survey, completed by 221 firms - comprising 350 respondents, including 186 senior executives and 164 pension scheme managers - revealed that:

• The majority (76%) of *senior executives who responded to the survey believe that contribution rates higher than the current 8% statutory minimum will be required in future to ensure that employees have sufficient retirement income.
• There are much higher levels of business support for raising minimum automatic enrolment contribution levels over a five-year period (78%) rather than over the next two years (47%).
• In the meantime, more than 7 in 10 employers (74%) believe that business must do more to engage staff with pensions savings. 87% of respondents also said that the Government should prioritise educating people about the importance of pensions over the next two years.

Matthew Percival, CBI Director of Skills and Inclusion, said:

“The vast majority of firms providing both defined contribution and defined benefit schemes maintained the amount that they pay in because they value the importance of competitive workplace pensions, despite the disruption caused by COVID-19.

“Businesses know that they have a vital role to play in offering advice to employees about saving for retirement. It’s also crucial that the Government educates people about the importance of having a pension.

“Employers are eager to build on the stand-out success of auto-enrolment and know that higher business contributions will be needed in future. But with firms only beginning to recover from the pandemic, and while they’re prioritising investing in more immediate pay and conditions to address labour shortages and rising living costs, any increase must take place over the next five years rather than in the short-term.”

Tess Page, Partner and Trustee Leader at Mercer, said:

“It is reassuring to see that, despite multiple pressures on businesses, support for pensions remains undimmed. However, many defined contribution schemes are still a long way off providing good retirement outcomes and without firm action to improve contribution and engagement levels the intergenerational pension gap risks widening further.

“Now more than ever, those responsible for pension schemes must work together to ensure the right outcomes for all their stakeholders.”

Pension schemes support climate-related reporting, but need to be better able to measure and compare the impact of their investments

From 1st October 2021, pension schemes with an asset value of £5 billion or more must report the risks and opportunities that climate change poses to their investments. This reporting must follow the Taskforce on Climate-related Financial Disclosure (TCFD) framework.

• Almost half of businesses with a defined contribution scheme (47%) say that disclosures will be a useful way to engage employees with their future savings.
• Businesses with a defined benefit scheme (57%) believe that disclosures will lead to greater communication and collaboration between trustees and employers in the future.
• But while the TCFD framework provides a useful template for pension schemes to report climate risks, understanding of the requirements remains low among trustees (8%) and employers (5%). To improve this, pension schemes need to be able to better measure and compare the impact of their investments.
• Both businesses with a defined contribution scheme (41%) and businesses with a defined benefit scheme (62%) think that the cost of publishing compliant TCFD-aligned disclosures will be greater than the Government’s estimate of £15,000.

Matthew Percival, CBI Director of Skills and Inclusion, said:

“Climate change exposes pension schemes to financial risk as well as opportunity, so the requirement for firms to step up their reporting on this is welcome. It could also help more employers to increase staff engagement with their pension.

“Introducing standardised disclosures where there may be financial risks stemming from climate change is also hugely useful. But uneven reporting standards and a lack of readily available climate data across the investment chain remain sources of frustration.

“The Government should ensure that the climate impact of investments can be properly measured and compared by creating common standards for green investments. This will help pension schemes to meaningfully incorporate Environmental, Social and Governance (ESG) considerations like sustainability into how they are run.”

Tess Page, Partner and Trustee Leader at Mercer, said:

“Aspirations for incorporating ESG more substantially into pension scheme management are high, but the pace of change has been slow. Many schemes are unsure where to start, but fortunately relatively small steps can make a difference, including simple assessments to consider what actions will deliver most impact.”

Businesses want to work with the Government to manage competing defined benefit costs

• Almost all firms offering defined benefit schemes which experienced cashflow difficulties due to COVID-19 have not reduced their cash contributions to schemes or negotiated a temporary pause.
• 65% of employers offering defined benefit schemes believe that over the next two years, the Government should prioritise supporting them to grow their business as they work to meet pension scheme obligations, for example, by minimising the cumulative regulatory burden. But with a significant minority (33%) expecting the new DB Funding Code to increase the contributions they must make, achieving this balance is expected to get harder.
• Fewer than 1 in 10 (8%) pension managers say that they understand what behaviours or actions are likely to constitute investigation and prosecution by the regulator, following this year’s introduction of new criminal offences intended to deter wilful and/or reckless pension mismanagement.
• 29% of businesses with defined benefit schemes are worried that the introduction of Taskforce on Climate-related Financial Disclosure (TCFD)-aligned reporting and disclosures will lead to divestment that could put future returns achieved by the pension scheme at risk.

Matthew Percival, CBI Director of Skills and Inclusion, said:

“Firms with defined benefit schemes are grappling with the administrative burden of new regulations. They face an uphill battle to maintain their pension schemes while also investing in company growth.

“Employers need clarity from government and the Pensions Regulator about their responsibilities so that they can continue to protect member benefits whilst growing their business.”