Understanding the relationship between retirement adequacy and financial resilience

Employers can help build a more confident, resilient workforce by treating pensions as a core part of financial wellbeing and helping employers balance today’s pressures with tomorrow’s needs.

Financial resilience is often framed as a short-term challenge. Can employees cover an unexpected bill, manage higher household costs or avoid debt when life changes? These questions matter. But resilience also has a long-term dimension.

If employees cannot build enough savings for later life, today’s financial pressures risk becoming tomorrow’s retirement challenge.

How is financial resilience showing up today?

UK research consistently links money worries with lower engagement, poorer focus and absence:

Around two-thirds of employees say financial stress affects their motivation or ability to focus at work
One in eight have taken time off because of financial concerns.
Employees lose an average of around five working days a year as a direct result of financial stress.

Employers may experience the impact in less visible ways. Around a quarter of workers report reduced productivity at work because of financial worries, even when they are physically present. This issue of presenteeism is now estimated to cost UK employers several billion pounds a year, over and above the cost of absence.

Why retirement adequacy is essential to financial resilience

Pensions adequacy is part of the picture because employees do not separate financial pressures into neat boxes. Rent, mortgages, childcare, debt, savings and pension contributions all compete for attention and income.

Retirement can feel distant and abstract, especially when people are focused on getting through the month. But if concerns about pension adequacy are not addressed, they are likely to become bigger financial worries in the future.

What’s coming?

The Pensions Commission’s recent interim report points to millions of people undersaving for retirement, with low and middle earners, women, part-time workers and the self-employed particularly exposed.

Recommendations aren’t expected until 2027, but an expansion of automatic enrolment (AE) coverage and/or an increase in AE contributions is widely anticipated.

At the same time, the upcoming launch of pensions dashboards could see a shift in employee engagement and shine a light on the lack of savings employees have today. At that point it’s more likely they will turn to their current employers to understand how to ‘fix’ this.

What can employers do?

Employers do not need to wait for final Pensions Commission recommendations. Mandation may help, but it will take time.

Contribution increases that work for some employees could create affordability pressures for others. If change feels too blunt, opt-outs could rise and add to employee financial worries.

There are four key steps to assess the retirement adequacy of your workforce and what you could review to support your employees’ retirement outcomes as well as their financial resilience:

Understand your workforce. Employers can review age profiles, contribution levels, opt-out rates and pot sizes to better understand the likely pensions adequacy of their employees.
Understand how possible policy interventions from the Pensions Commission or other changes such as the cap on salary sacrifice could influence that outlook.
Review your scheme design and understand if it’s creating any unintended barriers to pension saving.
Review whether your scheme design could work better for your employees without necessarily impacting your reward budgets and/or asking employees to pay more. Getting more from your provider for free or exploring newer options like CDC could help you feel confident your strategy supports building the retirement adequacy of your employees.

Retirement adequacy is moving up the reward agenda for good reason. A pension that does not deliver enough income leaves employees exposed because by the time they realise they may have fewer options to recover. By treating pensions as a core part of financial wellbeing, employers can help employees balance today’s pressures with tomorrow’s needs and build a more confident, resilient workforce.