Latest analysis by LCP has highlighted that employees of FTSE100 companies lost out on around £100m of pension contributions because of financial pressures caused by increases in the cost of living.

The figures feature in LCP’s annual analysis of the pension positions of FTSE100 companies. Disclosed data within 2021 and 2022 accounts shows that the average pension cost has fallen. Around 60% of companies reported a drop in the average employee pension cost as a proportion of salary. This is despite the fact that many companies are improving their defined contribution pension offering, and so would typically expect to see an increase in their pension spend.  

These figures highlight how employees are managing their money and are feeling the financial pinch. 

Other recent research by LCP across 10,000 employees highlighted that many are already cutting back on things like shopping and leisure spending with further spending reductions planned (including on pensions). 

Based on our survey information:

• Around 12% of employees surveyed had already actively cut back on pension contributions to reduce ongoing financial commitments.
• A further 14% of employees were currently planning reductions for next year. 

This action needs careful consideration, as whilst it will increase take-home pay over the short term, it could potentially mean missing out on additional matching company pension contributions. This would hit income in retirement and mean individuals may not be able to afford to retire. 

Executive pensions

The average level of pension contributions paid to an FTSE100 CEO has halved since 2018 as a result of campaigning from the Investment Association for executive pensions to be more in step with that available to the rest of the workforce. 

Whilst these pension benefits may be available to employees, data suggests that 3 in 4 CEOs are receiving pension contributions in excess of the average paid to their employees. 

Jonathan Griffith, author of the report and partner at LCP, commented: “It is completely understandable that people are ensuring they have enough money for the day-to-day and that saving for a pension can sometimes take a hit as a result. That said, this fall is significant. The level of defined contribution pension savings across the UK was already too low, and now more people are heading towards not having enough saved to be able to afford to retire.”

Heidi Allen, Head of Financial Wellbeing at LCP, commented: “We have seen levels of financial stress rising over the last few years, resulting in many employees having to make tough decisions about their regular spending. ‘Behind the scenes’ spending, such as choice of supermarket, mobile phone provider, and regular subscriptions, was the start, but now many employees are having to make more substantial choices with their spending, which includes employee benefits, insurance, and pensions. There is a considerable role here for communication and education to ensure employees understand the consequences of their decisions and the resulting future financial impacts.”