What is your workplace pension actually for?

Pension objectives may vary between employer and employee but a conscious decision and understanding of its outcome is crucial from both sides if a moderate retirement living is to be reached.

Workplace pensions are too important to be treated as a set-and-forget obligation. Auto-enrolment has transformed participation, but it may have encouraged some employers to view their workplace pension primarily as something to administer, rather than a benefit to deliberately design, measure and improve.

For many organisations, pension contributions are one of the largest recurring investments they make in their people. Yet pension spend isn’t always scrutinised like insurance, technology, property or other major commitments.

In adviser firm The Ink Group’s experience, employers often know what their scheme costs and whether it meets statutory requirements, but few can explain what they want that investment to achieve - or what evidence would show it’s working.

If you haven’t defined the role of your workplace pension, how can you judge whether it’s succeeding, represents good value or is helping employees achieve better long-term outcomes?

This Pension Purpose Test could help you move from assumption to evidence:

What do you want your pension to achieve for your people and your business?
Does your contribution structure reflect that ambition?
Is the quality of your scheme and provider good enough to deliver it?
Do your employees understand and use the value you provide?
What evidence would tell you that the pension is succeeding?

Start by defining the ambition

Employers will have different, but equally valid objectives for their workplace pension. It may be intended to meet auto-enrolment requirements, help employees achieve an adequate retirement income, strengthen your reward proposition, support recruitment and retention, improve financial wellbeing, or perhaps all of this.

It may also help your employees make more informed decisions as they approach retirement, or support your organisation’s longer-term workforce planning.

There doesn’t need to be one objective but there does need to be a conscious decision. Royal London’s employer research found that 62% of employers with a Royal London workplace scheme see it as a key employee reward strategy, while only 9% view it purely as a compliance requirement. Yet around 60% of Royal London schemes are set up at minimum automatic enrolment contribution levels (8% or less). That may be appropriate for some employers - but it should be a deliberate choice rather than an unchallenged default.

The Ink Group stress this matters because, in their experience, pension arrangements are often inherited. Many employers are operating a scheme they wouldn’t necessarily design if they were starting out today with contribution structures, providers and scheme design left largely unchanged for years.

Does the design support the ambition?

There isn’t a universally correct contribution percentage. What’s appropriate depends on your objectives, workforce demographics, employment market and wider reward strategy.

This raises the question of consistency. If you describe your pension as a significant employee benefit, do your contribution levels, matching arrangements, and pensionable earnings definitions support that claim? If your aim is to improve retirement outcomes, is the current structure capable of doing so? Royal London's research with Oxford Economics, Higher auto enrolment contributions and economic outcomes (2026), found that only 26% of people are projected to meet the moderate retirement living standard by 2040?

This doesn’t automatically mean increasing contributions. It means making sure scheme design is intentional, not simply inherited.

Contributions matter but they’re not the whole story

Contribution levels are important, but they’re only one driver of retirement outcomes. Investment performance, charges and the decisions members make as they approach retirement also matter. FCA Financial Lives (2024) data shows that around one third of adults who’d accessed a defined contribution pension in the previous four years incorrectly believed every income drawdown withdrawal would be 25% tax-free, showing how easily value can be lost without the right guidance.

This highlights the importance of considering pension quality as a whole; default investment strategy, administration, technology, communications, member experience, guidance, retirement options and the overall capability of your provider.

A generous contribution structure won’t necessarily deliver a strong outcome if other parts of the proposition are weak. Equally, focusing too narrowly on obtaining the lowest headline charge may overlook other forms of value that can influence your employees’ experiences, decisions and longer-term financial resilience.

The evolving Value for Money agenda reinforces the need to look beyond cost and consider whether members are receiving good outcomes, effective engagement and timely help at key decision points.

Do employees experience the value being provided?

In practice, there can be a significant gap between the benefit an employer believes it’s offering and the value employees experience.

You may provide enhanced contributions, contribution matching, sophisticated investment options, retirement tools or financial wellbeing support. But these features only create meaningful value if your employees understand and use them.

Do your members know what you contribute, understand their choices and know where to access support? Although 95% of UK adults own a smartphone and around three-quarters access online banking through a mobile app, pension engagement has traditionally lagged behind day-to-day money management. Royal London member engagement data shows that 40% of scheme members have downloaded their app – an encouraging sign that digital engagement is growing. The opportunity now is to build on this and help checking a pension feel as normal as managing everyday finances online.

From both an adviser and provider perspective, the standard expected of a high-quality workplace pension is evolving. Employers should increasingly expect more than administration, investments and generic communications - they should look for timely, relevant guidance that helps members make better decisions throughout their pension journey.

How will you know whether it’s working?

Finally, decide what evidence will show whether your pension scheme is succeeding.

Choose measures that reflect your intended outcomes, so you can assess value, identify improvements and show whether your scheme is doing what you need it to do.

The Ink Group’s view is that the real governance risk isn’t necessarily having the wrong pension. It’s being unable to explain why your scheme is designed as it is, what it’s intended to achieve and what evidence shows it’s working.

By using the Pension Purpose Test to connect purpose, design and evidence, you’ll be better placed to explain your scheme’s role and improve outcomes for your people.