Companies must invest in pensions to free up next generation of talent



Pictured: Sarah Phillips (left) and Iona Bain

Businesses that fail to provide for employees’ retirement are storing up a potential staffing crisis according to a new report on the challenges facing boards in dealing with pension liabilities.

An ethical approach to investing in pensions and eradicating the gender pensions gap were among a number of key problems highlighted by senior business leaders grappling with mounting boardroom pension tensions.

They also raised serious question marks about the value of auto-enrolment regulations, and how businesses can engage with younger members of their workforce on the importance of pensions.

The scale of corporate pensions challenges has been laid bare in a new research paper entitled From Introvert to Extrovert: Welcoming pensions to the party.

The report was compiled by Burness Paull in partnership with author and financial journalist Iona Bain following a series of debates and interviews with boardroom executives from some of the country’s leading businesses.

“Pension contributions can be a costly drain on the corporate purse, and are increasingly cited as an important ethical responsibility for businesses,” explained Sarah Phillips, head of pensions at Burness Paull.

“Pension funding often competes for available cash with future investment, and the tension is twofold.

“The sustainability of a business is compromised if it isn’t making sufficient forward-facing investment. Yet if employees can’t afford to retire, businesses are not in a position to invest in new talent to shape the future.”

On the issue of auto-enrolment Ms Phillips said contributors to the report agreed minimum contribution guidelines had not solved the issue.

“Some participants voiced concerns that young people and employers are being lulled into a false sense of security with auto-enrolment and do not appreciate what the level of contributions being paid actually means for the financial future of employees,” she said.

“This is demonstrated by the government’s proposals to increase the earliest age at which pension scheme members can access their pension benefits.”

Business leaders also admitted that tackling the gender pensions gap is proving to be a thorny issue for many – and may have been set back by the pandemic having a disproportionate impact on women in the workplace.

“More women than men leave the workforce to have children or care for ageing parents, and often return to lower paid part-time roles with inferior pension benefits,” added Ms Phillips.

“Early data has shown that the pandemic seems to have exacerbated this, and the only way it can be addressed is if businesses fully commit to championing gender equality to help shift the dial.”

Ms Bain backed calls for companies to be more proactive in addressing the issue of pensions.

“Most young people prioritise saving for their first home above everything else – pension included,” she explains.

“The average millennial sees most of their wages eaten up by housing costs, and they will need a far bigger pension pot just to maintain their standard of living in retirement if they continue renting. So saving for homeownership can actually be critical for a young person’s retirement prospects.

“But a young person also needs to ensure they have short-term savings for emergencies and will often be paying off expensive debt long-term.

“Employers and the pensions world need to acknowledge these pressures and provide well-rounded advice in the workplace – only then can we guarantee that a young person will be secure enough to commit to their pension.”

Ms Bain also highlighted the low number of workers taking steps to compensate for poor workplace pension provision – such as opening a private pension or Lifetime ISA.

“Low opt-outs are not necessarily a sign that auto-enrolment is working,” she says.

“In my experience, young people either feel it’s too much of a hassle to opt out or they aren’t fully aware they’re opted in.

“This lack of positive engagement wouldn’t necessarily be a problem if we could guarantee that current contribution rates and default investment strategies are going to be adequate for future generations.

“The evidence suggests this is far from certain.”

The full report can be accessed here.



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