You could gain an extra £1 million in your retirement fund by choosing the right company to work for, as revealed by a Money investigation. The Sunday Times reached out to every company on the FTSE 100, the index of the largest firms on the UK stock market, to compare pension schemes for UK-based employees.
Legal mandates under auto-enrolment compel companies to contribute only 3% of an employee’s salary to their pension (in addition to the employee’s 5%). However, our research unveiled that some companies contribute up to 25%. Firms like Unilever, Shell, and BP emerged as the most generous employers, significantly enhancing the size of your savings.
“Securing a job with an employer who offers a generous pension scheme is one of the simplest ways to ensure a luxurious retirement,” said Tom McPhail from the consulting firm Lang Cat. “The difference between the best and worst employer contributions can be enormous.”
Recruitment experts noted that better pension schemes are increasingly vital for attracting and retaining staff, especially during the ongoing cost of living crisis.
Combining stagnant wage growth with more substantial pension contributions, employees might choose to stay longer at companies offering a larger investment into their future.
Of the 50 companies that responded to our inquiry, 45 indicated that new employees were automatically enrolled in a pension scheme with a default employer contribution rate exceeding the 3% legal minimum.
One of the most generous plans is from Unilever. Employees receive an allowance equivalent to 25% of their salary, which can be directed entirely to their pension or partially taken as additional salary. Employees are not required to contribute any of their salary to receive this allowance. Unilever stated that employees get a default 15% employer pension contribution, with the remainder available as salary unless adjusted.
According to Interactive Investor, a 30-year-old earning £50,000 a year and contributing 25% of their salary annually could save about £1.5 million by age 65. This assumption includes a 2% annual salary increase and a 5% yearly investment growth after fees. Conversely, someone on the same salary contributing the 8% auto-enrolment minimum would accumulate £479,081 by retirement—approximately £1 million less.
BP offers staff a flexible allowance equivalent to 20% of their base salary, which can partly be added to their pension or taken as extra pay. A 30-year-old earning £50,000, contributing 20% of their salary to a pension until 65, could expect around £1.2 million, according to Interactive Investor.
Similarly, Shell provides a default employer contribution of 15% of salary if employees contribute 5%, increasing to 20% if they save 7.5%. By contributing a combined 27.5% of salary, individuals could potentially accumulate £1.79 million by age 65, Interactive Investor estimates.
Croda, a chemicals company, was the only one among the 50 firms offering a defined benefit pension scheme. This rare type of pension guarantees a retirement income and is common in the public sector, but expensive to maintain in the private sector.
Croda’s employees accrue retirement income at a rate of one-eightieth of their salary annually. Employees contribute 6% of their salary while the employer ensures the retirement income remains on track. On average, Croda’s contribution equals 20% of an employee’s salary.
Habiba Khatoon from recruitment firm Robert Walters stated: “FTSE 100 companies offer generous employer contributions to promote employee loyalty. With the current high cost of living, many find it harder to save, making those contributions more attractive.”
‘Aiming for an Early Retirement’
“A good pension wasn’t my priority when job hunting post-university,” said Melroy D’Souza, 39, from Southampton, living with his wife Joanna, 37, and daughters Faye, eight, and Rachel, five. “That changed when I started a family.”
D’Souza has been with Kingfisher, a home improvement firm owning B&Q, for 17 years. The company contributes 5% to employees’ pensions by default, increasing to 14% if employees contribute 8%.
After marrying 11 years ago, D’Souza increased his pension contributions to maximize his employer’s input, now having saved £130,000.
“I hope to retire earlier than the state pension age and live comfortably,” he said. “A generous pension scheme is essential, and Kingfisher offers a better plan than many local firms.”
Under 2012’s auto-enrolment policy, employees earning over £10,000 annually and aged 22 or older are automatically enrolled in a company pension. Most in the private sector have defined contribution schemes—their retirement amount depends on their savings and investment performance.
Auto-enrolment mandates at least an 8% salary contribution to pensions annually, but experts argue this is insufficient for comfortable retirement. The Sunday Times advocates raising the minimum employer contribution from 3% to 5%.
“There’s broad agreement that automatic enrolment minimum contributions are insufficient,” McPhail stated. “Employers must increase their contributions to 5% as a crucial first step.”
The median default contribution rate for company pension schemes is 10%, with 6% from employers and 4% from employees, according to pensions firm Aon. Their survey covered 214 defined contribution schemes with one million members and £60 billion in assets.
A survey of 5,000 people by Michael Page, exclusively shared with The Sunday Times, found 46% of job seekers consider pension benefits before applying. Additionally, 51% review holiday allowances and 33% examine sick pay policies.
Jessica Timelin from Michael Page noted: “Pensions have gained importance for job applicants. With the cost of living crisis, candidates want to maximize every penny—they evaluate pension worth and other benefits like health insurance. These benefits reflect a company’s effort to offer comprehensive packages.”
Money’s investigation revealed that staff at retailers B&M, JD Sports, and Next, food service firm Compass Group, and property company Barratt Development receive a default employer contribution of 3%.
Barratt Development employees can join an enhanced pension scheme with up to 10% employer contribution if contributing 5% themselves. Compass Group staff with two years of service can also access a scheme where the employer matches up to 6%. JD Sports employees can receive a maximum 4% employer contribution.
David Thomas, CEO of Barratt Developments, said: “We encourage all employees to save for their future, providing access to independent advice and a generous 10% employer contribution pension to all employees, alongside the auto-enrolment pension for those preferring that scheme.”