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Barnett Waddingham
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What is the cost of a contribution?

Published by Damian Stancombe on

Estimated reading time: 2 minutes

An employer will make a very generous contribution of 10% to a pension, but only if the employee makes a contribution of 6%. However, some employees are unable to make the 6%.

This is not because these employees don't want to make the contribution, they are just unable to. Many are struggling financially with the basic costs of today, such a food, clothing, shelter, transport and heating. While an employer may see their 10% contribution as generous (box ticked!), the employee may be thinking that this is grossly unfair. They may feel that the employer is ignoring the fact that they are prioritising their affordability and saving elsewhere; e.g. in a LISA or paying off debt.

Maybe the employee feels under pressure to contribute to show loyalty to the company.

Perhaps the employer decides to communicate to the employee that by opting out of receiving the 10% contribution (by not making a 6% contribution) they are losing out.  The employee may then feel even more disillusioned and possibly excluded. Maybe the employee feels under pressure to contribute to show loyalty to the company. So they contribute their 6% and this is locked away until the one day - the day they wish to withdraw money (and are able to).

Imagine your employee then starts building up debt, makes poorer food choices, stops socialising and is unable to take a holiday or pay for heating. Maybe they can't even afford to get to work every day as a result.

That is why it’s important to understand your employee’s likely financial priorities and to structure pension contributions accordingly. It should be part of an overall financial wellbeing approach that recognises the diverse needs of employees.  

About the author

  • Damian Stancombe

    Damian heads up the Workplace Health and Wealth team for Barnett Waddingham. Damian advises a range of UK corporate and trustee clients on their workplace health and wealth issues; from scheme design through to ongoing governance for all defined contribution arrangements.

    View Biography

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