Pension adequacy: the gap between what we know and what we do

When we recently brought together employers for our first employer roundtable, we wanted to hear directly about the challenges they face in helping employees become retirement ready.  

The session “Pension Adequacy, the gap between what we know and what we do” was led by Jamie Jenkins, Policy & Technical Director, who started by exploring the evolving pensions policy landscape and the significant programme of change ahead. Ilana Miller, Investment Development Director, then considered the psychological factors that influence investor resilience and how these can become barriers to long term investing.

Drawing on Royal London’s research earlier this year, with Oxford Economics, we considered what this means for employers and how workplace support could help improve outcomes.

One message came through clearly - automatic enrolment has transformed pension participation, but adequacy remains one of the biggest long-term challenges facing the UK workforce and this causes concern for employers.

Automatic enrolment is rightly recognised as one of the UK’s great public policy successes. More people than ever are saving into a workplace pension. But what we heard around the table reinforced an important point - participation alone doesn’t guarantee that people will have enough for the retirement they expect.

Our research with Oxford Economics found that, by 2040, only 36% of defined contribution households are expected to meet their Target Replacement Rate (the percentage of pre-retirement income that retirement income is expected to replace), while just 26% are projected to achieve the moderate Retirement Living Standards benchmark.

These findings gave the discussion a clear focus. We reflected not only on whether current saving levels are sufficient, but also on the practical realities employees face when balancing today’s financial pressures with tomorrow’s needs. 

Is pension policy approaching a turning point?

Jamie set out the significant programme of pension reform already under way. With the industry responding to several policy and regulatory developments, attention turned to the second Pensions Commission and its forthcoming strategic review of retirement saving. A key question was whether contribution levels will become the next major focus for reform.

There was broad recognition around the table that while automatic enrolment has established a saving habit, the current minimum total contribution of 8% may not deliver the retirement outcomes many employees expect. This prompted discussion about the potential impact of increasing minimum contributions towards 12%.

Our Oxford Economics research indicates that increasing total contributions to 12% could improve adequacy outcomes, raising the proportion of households meeting retirement adequacy measures from 36% to 39.9% by 2040. It isn’t a complete answer, but it shows the meaningful difference that contribution levels can make over time.

The discussion also brought an important question into focus - how do we support better long-term outcomes without adding undue pressure for employees who are managing cost-of-living challenges now? 

Understanding the behavioural challenge

Contribution levels matter, but the conversation quickly moved beyond policy to the way people think and behave. Ilana explored some of the psychological factors that can create barriers to long-term investing and how greater investor resilience could help people remain focused on their longer-term objectives.

Pensions can feel distant and complex. Even when employees understand the value of saving for retirement, immediate financial demands can understandably take priority. The challenge is therefore not simply one of awareness, but of turning awareness into meaningful action.

Our 2026 Workplace Pensions report reflects this challenge. While 52% of employees say they’ve thought about their retirement finances, only 18% have a clear retirement plan, and 64% haven’t sought advice or support on how much they should save. What we heard reinforced that education matters, but simplicity and relevance matter just as much.

Making pensions easier to understand was a clear priority for employers. Simple, jargon-free explanations of pensions and investments can help employees connect decisions made today with the retirement they may want tomorrow.

Through clear communications with simplified language and financial education from as early an age as possible, employers felt they could help employees understand the value of long-term saving while remaining sensitive to their current financial circumstances. 

Turning awareness into action

For me, the clearest takeaway was that future reform may help improve outcomes, but employers and pension providers can make a difference today.

People rarely change behaviour because they’ve seen a message once. Effective engagement requires regular, relevant communication across different channels and at different moments.

That was particularly important to the employers around the table. Not every employee spends their working day in front of a computer, so relying solely on digital communication risks missing some of the very people we want to reach.

Webinars provide accessible and effective access to pension expertise, but face-to-face engagement often creates a different type of conversation. Questions become less transactional and more personal, reflecting an individual’s circumstances, understanding and concerns about retirement.

With only a small proportion of the UK population paying for financial advice, employers and pension providers have an important opportunity to reach those who don’t routinely access professional support. Even a five-minute conversation with a pension expert can be the first step towards someone taking a greater interest in their pension and financial future. 

Closing the gap

As the discussion ended, there was broad agreement that closing the pension adequacy gap will require progress on several fronts. Policy and contribution levels matter, but so do the everyday opportunities that help people understand their pension and take manageable action.

Employers were clear that support needs to be simple, relevant and accessible to different workforces. By communicating regularly, using a mix of channels and creating opportunities for more personal conversations, employers and pension providers can help more people move from awareness to action — and towards a better retirement outcome.