Smaller employers must do more to boost pension saving as 1.2 million eligible employees are missing out on money that companies and the government contribute, according to consultancy firm Broadstone.

Broadstone analysed the latest workplace pension statistics from the Department for Work and Pensions (DWP) and highlighted a need for SMEs to boost member pension participation.

The data revealed that one in five (20%) employees of smaller companies, which were deemed to be those that have between five and 49 staff, and eligible for a workplace pension are not participating – a figure equivalent to an estimated 803,000 workers.

This is the second successive year that a fifth of workers for employers of this size have not been contributing, which Broadstone stated could suggested that after the initial success of auto-enrolment, there is still a sizeable proportion of non-savers who need greater encouragement.

A further 12% of employees at businesses with 50 to 249 staff are not participating in their pension scheme, marking a further 374,000 non-savers. This means almost 1.2 million people working for SMEs may be falling through the pension accumulation gap, running the risk of a lower income in retirement.

Broadstone’s analysis revealed that contribution rates at larger companies are far higher, with under one in 10 employees at businesses with more than 250 people not participating in a workplace pension – equivalent to around 736,000 people.

Head of pensions and savings at Broadstone, Rachel Meadows, commented: “Workplace pensions are a fantastic way for workers to save in a tax-efficient way and even get free money from their employers and the government.

“However, it is clear that employees at smaller organisations are falling through the cracks at a greater rate than among larger employers. This is perhaps because these businesses are less likely to have a plan in place to communicate the need to start accumulating pension savings for later-life.

“Boosting pension participation among colleagues is a key duty of employers in a post auto-enrolment environment as it is critical to protecting the long-term financial future of their colleagues. There is a benefit for smaller businesses too – it helps them attract and retain talent if workers know their employer is achieving best-practise standards in line with bigger organisations.”

Broadstone highlighted that some employees may be contributing to a personal pension, which is not counted in this DWP data, although this is likely a small proportion of people – with the latest figures suggest around 5% of people have a personal pension – and they won’t always benefit from an employer top-up.

Furthermore, the figures also demonstrate the benefit to employees of participating in a workplace pension scheme. In total, the DWP data shows that employers in the private sector contributed £37.5bn, with employees gaining from a further £7bn through tax relief.

Meadows added: “Employers should be taking steps to increase communications and provide sources of guidance on the benefits of pension saving to make clear the responsibilities individual pension savers bear as well as the vast financial contribution that employers and the government will also make. With pensions being one of the biggest employee benefit costs for most employers, allocating a small extra spend on boosting staff knowledge can reap a big reward.

“This is the key to improving understanding, and therefore engagement and participation, among employees and ultimately aligning participation rates with larger employers.”

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