A new report by Towers Watson, a WTW business, has found that 76% of employers offer alternative cash benefits to high earners in lieu of pension contributions.
The WTW Annual Allowance and Other Pension Taxes Survey 2025, which polled 88 UK employers also found that, despite the abolition of the pensions Lifetime Allowance (LTA), many employers continue to offer high earners the chance to opt out of pension provision altogether.
Helen Perrin, Head of Financial Planning UK at WTW commented: “Many employers have stopped short of requiring employees to make pension savings up to their Annual Allowance before they can benefit from cash alternatives. However, we are seeing employers engage with previous LTA opt-outs to encourage them to review their options. Employers can leverage the employer-arranged pensions advice exemption to offer the first £500 of pensions guidance or advice tax-free, ensuring that all their employees are well-prepared for the future.”
Where employers choose to offer alternatives to pensions, cash is the most popular form, with 91% of these employers offering cash as an alternative to Defined Contribution (DC) pension contributions and 72% of these employers offering cash instead of Defined Benefit (DB) arrangements.
More than half of these employers reduce cash payments to cover the cost of employer National Insurance Contributions. This trend is more pronounced among Defined Contribution (DC) employers with 55% making adjustments, compared to 27% of Defined Benefit (DB) employers.
Perrin explains: "National Insurance Contributions (NICs) are payable on any cash top-ups, meaning the cost to the employer of providing cash is higher than an equivalent pension contribution. To keep things cost neutral for employers, more than half of those who offer cash top-ups offset the extra cost of employer NICs by reducing the cash value. With employer NICs increasing to 15% from April 2025, many employers plan to cut the cash top-up further to allow for this. For example, an employer might offer the choice between a 10% pension contribution or an 8.7% cash allowance from April 2025."
Further Findings from the report:
• Employers allow maximum flexibility for high earners: Most restricted contribution options start at £10,000. However, employers offer flexibility for high earners to increase pension savings through regular contributions and/or bonus sacrifice. This allows high earners to pay up to their personal Annual Allowance and make use of any carry forward allowances.
• Employee Support: Most employers provide some form of support to employees to help them manage their pension contributions and understand their options for saving towards retirement using alternative tax-efficient vehicles. This support ranges from fact sheets (72%) and webinars (36%) to access to individual guidance (23%) and individual financial advice (11%).
• Review of Death-in-Service Arrangements: 87% of employers plan to review their Death in Service arrangements in preparation for the upcoming changes to inheritance tax on pension death benefits from April 2027.
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