Retirement savings shortfalls could create workforce health and productivity risks 

Employers could face growing workforce health, productivity and planning challenges as employees increasingly struggle to build sufficient savings to retire when they want to, according to analysis from Hymans Robertson.

The pensions and financial services consultancy has warned that retirement inadequacy is becoming a commercial issue for employers, with financial stress affecting employee productivity and absence while changing retirement patterns could leave organisations managing an older workforce for longer.

Analysis conducted as part of Hymans Robertson’s Future of UK Retirement project found significant potential retirement shortfalls within a large employer in the health sector.

Using its Guided Outcomes modelling, the consultancy assessed employees’ pension savings against the income required to meet Pensions UK’s minimum, moderate and comfortable retirement living standards.

It found 15 per cent of employees at the organisation were at “very high risk” of retirement inadequacy and were not expected to achieve even the minimum income standard.

Three-quarters of the workforce fell between the minimum and moderate retirement living standards, potentially leaving a substantial proportion of employees at risk of inadequate retirement income. The analysis, illustrated in a workforce heatmap, showed the risk spread across different age groups rather than being confined to employees approaching retirement.

Hymans Robertson said the implications extend beyond employees’ financial wellbeing. Financial stress, including concerns about inadequate retirement savings, affects productivity and absenteeism and costs UK employers several billions of pounds each year, it said.

Later retirement could also create workforce planning challenges at a time when healthy life expectancy is reducing, potentially increasing the importance of employers considering how health, job design and financial wellbeing interact as employees remain in work for longer.

The findings come as potential changes to UK pension policy could increase the cost of providing workplace pensions.

Hymans Robertson pointed to an extension of automatic enrolment eligibility criteria, which has already been legislated for but not implemented, alongside discussion around increasing minimum employer pension contributions to 6 per cent.

Employers should also prepare for the planned introduction of a £2,000 cap on salary sacrifice pension contributions from April 2029, the consultancy said.

For the employer modelled in the analysis, the combined impact of potential changes could increase costs by as much as 25 per cent.

However, Hymans Robertson warned that policy changes alone may not provide the best outcome for every workforce, arguing that employers need to understand where retirement inadequacy sits within their own employee population before deciding where to invest.

The findings raise a wider workplace wellbeing challenge as the UK’s working population ages. Employees who cannot financially afford to retire may remain at work for longer, potentially increasing the need for employers to consider retirement adequacy alongside preventative health, occupational health, flexible working and support for employees managing long-term health conditions.

Hymans Robertson said employers should assess the retirement outcomes of their workforce and consider how their pension strategy could be adapted to address future risks rather than waiting for policy changes to determine their approach.