Pension saving needs flexibility, not another reason to opt out

The adequacy challenge is bigger than the headline numbers

The latest official data from the Department for Work and Pensions (DWP) reports that around 90% of eligible employees are saving into a workplace pension, participation remains high and the overall level of contributions continues to increase.

But we should be careful about what that statistic really means. More money flowing into pensions does not automatically mean better retirement outcomes. Research by the Resolution Foundation shows many workers remain unlikely to achieve retirement incomes capable of maintaining their pre-retirement standard of living.

The gap between expected pension outcomes and what is now considered an adequate retirement income is larger than the original Pensions Commission anticipated. 

The opt-out warning light is flashing

Automatic enrolment has been one of the most successful public policy interventions of recent decades, bringing millions into pension provision. Yet its strength is also its vulnerability. When households feel financially stretched, the easiest option is often to stop pension contributions.

The DWP reports that both opt-outs and the number of employees stopping pension saving after enrolment have increased, with around 11% to 12% (up from 10% a year earlier) of newly enrolled workers now opting out. While still relatively low, the trend is an early warning sign.

Opting out solves a short-term cash-flow problem but creates a long-term income problem. It also removes the employer contribution and tax relief that make workplace pension saving so valuable. For lower and middle earners in particular, the decision may be entirely rational in the moment, but damaging over a working life.

Employers cannot close the gap alone

The scale of the challenge should not be underestimated. The Resolution Foundation estimates total pension contributions would need to exceed 14% of earnings, for median earners, to achieve the updated adequacy benchmarks.

Yet closing that gap will require support from both employees and employers. Employers already face rising employment costs, changes to National Insurance and broader economic pressures that affect their ability to contribute more.

Salary sacrifice is one of the few mechanisms that benefits both employers and employees, helping to increase pension saving efficiently. At a time when adequacy is already under pressure, policy should support rather than weaken arrangements that help employers contribute more.

Flexibility should be the next reform

Household finances are not static. Our costs and responsibilities fluctuate over time. Pension design should reflect that reality.

Today's system often presents savers with a blunt choice: maintain contributions or leave pension saving altogether. A better approach would make "opting down" the default alternative to opting out, allowing individuals to temporarily reduce contributions while remaining engaged with long-term saving.

Sidecar savings should play a key role in adequacy. The same household pressures, including rent, childcare, caring responsibilities, and unexpected expenses impact saving for later life. Sidecar savings for emergency or house deposit alongside pension saving can help manage short-term need from becoming long-term retirement problems.

Supporting financial resilience and retirement saving should not be competing objectives.

Measuring the right outcome

The adequacy debate highlights the need to focus on outcomes. A pension pot means little to most savers unless it is translated into the retirement income it may provide. Pension dashboards have an opportunity to shift the conversation from fund values to projected retirement income, helping members understand whether they are on course for the retirement they expect.

The impact is greater for lower earners, part-time workers, carers and renters, whose retirement outcomes may remain inadequate even when contribution rates appear sufficient. As housing costs become a larger feature of retirement, adequacy calculations must reflect this reality. Better financial education, compulsory in schools and employer support in the workplace, can help savers understand the value of staying invested and the consequences of opting out.

A reform agenda for the next Budget

The immediate challenge is not simply to increase headline contribution rates, but to improve retirement adequacy without pushing more people out of pension saving. That means focusing on practical reforms: protecting salary sacrifice, introducing an opting-down route, supporting sidecar savings, improving pension dashboards, and strengthening financial education.

The updated Pensions Commission has a chance to move the debate beyond participation and towards outcomes. Success should not be measured solely by how many people are saving, but whether they are on track for an adequate retirement and able to continue saving when financial pressures arise.

Adequacy matters. But the route to better retirement outcomes is not simply higher contributions. It is a pension system that people can afford to stay in.