Workplace pension review: compliant, but is it suitable?
Auto-enrolment has achieved something significant. Since its introduction, millions of workers have started saving into a workplace pension who never were before and participation rates across the private sector have risen substantially. For many employers, setting up a scheme, meeting minimum contribution requirements and enrolling eligible staff felt like the job was done.
The difficulty is that compliance and suitability are not the same thing. A scheme can meet every auto-enrolment requirement and still be falling short for employees. For example:
- charges may no longer be competitive;
- the default investment fund may have underperformed against alternatives in the market; or
- salary exchange may never have been introduced.
With further changes to workplace pensions expected over the coming years, the cost of standing still is growing.
The government’s analysis of future pension incomes, published in 2025, found that 43% of working-age people, equivalent to 14.6 million savers, are currently saving below their target replacement rate. At the same time, the latest Retirement Living Standards indicate that a moderate retirement lifestyle requires an income of around £31,700 a year for a one-person household and £43,900 for a two-person household. These figures suggest that minimum compliance alone may not deliver the outcomes many employees expect.
Charges and the cost of standing still
The government introduced a 0.75% annual charge cap in 2015 for default arrangements used for automatic enrolment. While that cap remains in place, the workplace pension market has become significantly more competitive.
Recent Department for Work and Pensions research found median annual management charges of 0.32% for multi-employer providers and 0.24% for single-employer trusts. This highlights how far many schemes now sit below the regulatory cap.
For an employee with a pension pot of £100,000, the difference between paying 0.75% and 0.30% in annual charges is around £450 a year before allowing for compounding. Over a typical working lifetime, the impact on retirement savings can be significant.
For many employers, a charge review is one of the simplest and most practical improvements available. Schemes established during the early years of auto-enrolment may benefit from reviewing whether their current pricing still reflects market conditions.
Investment performance: what is the default fund delivering?
Most pension members never make an active investment choice. According to the Department for Work and Pensions Pension Provider Survey 2024/25, 86% of assets held by multi-employer providers are typically invested in automatic enrolment default funds, with single-employer trusts close behind at 77%. For most employees, the default fund is therefore the biggest driver of retirement outcomes.
The same survey found significant differences in performance across providers. Net returns for members 30 years from retirement ranged from 4.3% to 12.1% a year across the market during the five-year period covered by the research. Sustained differences of this scale can have a substantial effect on long-term pension outcomes.
Employers are not expected to manage investment performance directly. However, they do have an ongoing responsibility to ensure that their pension arrangement remains appropriate for their workforce. If a scheme has not been reviewed since it was originally established, assessing the default fund against current market alternatives is a sensible place to start.
Salary exchange and National Insurance savings
Salary exchange is an arrangement under which an employee agrees to reduce their gross salary, with the employer paying an equivalent amount into their pension as an employer contribution. Because the contribution is made from pre-tax, pre-National Insurance earnings, both parties can benefit from lower National Insurance costs.
For example, in 2026/27, an employee earning £35,000 who exchanges the statutory minimum employee pension contribution calculated on qualifying earnings could save around £115 a year in employee National Insurance contributions. The actual saving will depend on the amount exchanged and the contribution basis used.
Many employers also choose to reinvest part of their own National Insurance saving into enhanced employer pension contributions. This can improve member outcomes and support retention without increasing overall employment costs.
Employers should also be aware that the government has proposed a cap on the National Insurance relief available for pension contributions made through salary exchange from April 2029, subject to parliamentary approval. Any review of salary exchange arrangements should take these potential changes into account.
Qualifying earnings and future contribution costs
Under the current auto-enrolment framework, minimum pension contributions are calculated on qualifying earnings, which are earnings between £6,240 and £50,270 in 2026/27. This means the headline minimum contribution rate is applied only to part of an employee’s pay.
The Pensions (Extension of Automatic Enrolment) Act 2023 gave the Secretary of State powers to remove the lower earnings limit, although no implementation date has been confirmed. If introduced, pension contributions would be calculated from the first pound of earnings, increasing the pensionable earnings base and, in turn, employer contribution costs.
While the timing remains uncertain, employers can model the potential impact now. Businesses with large populations of lower-paid or part-time employees may see a particularly noticeable increase in pension costs should the changes go ahead.
Governance is an ongoing responsibility
For many employers, establishing an auto-enrolment scheme was a project with a clear end point. Once the scheme was in place, attention moved elsewhere. That is understandable, but it can also mean valuable opportunities are missed.
The government’s Workplace Pensions Roadmap points towards continued reform over the remainder of this decade, including value-for-money measures and greater consolidation across the market. At the same time, provider performance, charges and workforce needs continue to evolve.
A periodic review can help employers understand whether their scheme remains competitive, cost-effective and aligned with the needs of their workforce.
How Moore Kingston Smith can help
Moore Kingston Smith’s Pensions and Benefits 360 review helps employers assess whether their current workplace defined contribution pension scheme remains competitive and suitable. The review covers provider credentials, scheme pricing, default investment strategy and performance, governance, flexibility and salary exchange arrangements.
Where a review identifies better options in the market, we can support employers through a structured open-market process and help implement an appropriate solution. We can also advise on wider salary exchange opportunities across employee benefits.
To discuss your organisation’s workplace pension arrangements, please contact our employee benefits team or visit our employee benefits page for more information.
