Unlocking value in UK workplace pensions: shifting from costs to outcomes 

However, since the introduction of auto-enrolment in 2012 - a major policy success - the pensions landscape has changed significantly. Over 80% of employees are now enrolled into a workplace pension  - typically a defined contribution (DC) scheme.

Despite this, our latest DC MOT Report revealed a fundamental shift in how the industry is defining value. It is no longer based solely on tax efficiency or levels of contributions, but on the quality of the outcomes for both employers and employees across the full savings journey.

Pensions are still the most tax-efficient vehicle for UK employees to save for retirement, which is an important part of their overall value proposition. However, recent policy changes have increased the cost of workplace pensions for employers.

This reinforces the need to assess value more holistically. Employers must now ensure every pound invested works effectively across the full savings journey, not just at the point of contribution. While tax efficiency can generate value – particularly pension tax relief for scheme members – it is not the only metric to consider.

Despite its financial benefits, DC MOT data shows that 25% of employers still don’t use salary sacrifice – and an even greater number don’t use it in full. This means there is still an opportunity for them to unlock more value without having to increase their overall spend.

Even when a pension scheme is managed efficiently during the accumulation stage, it can still fall short if it fails to support members when they retire.

This remains a significant challenge for scheme members and employers and has implications for workforce planning, retirement timing and financial wellbeing. That means maximising value requires looking beyond accumulation and supporting better financial decision-making at retirement.

However, the vast majority (76%) of employers are still not modelling retirement outcomes, limiting their ability to assess whether their schemes are delivering adequate results. Many also offer limited support when employees need to make complex decisions. Without appropriate guidance, there is a higher risk that members will make choices that could ultimately reduce the value of their pension benefits by as much as 60%. 

This gap is reflected more broadly, with 60% of employers not offering retirement planning courses and only 3% funding regulated financial advice, according to the DC MOT report.

As employers incur higher costs, the efficiency of pension scheme designs is likely to face increasing scrutiny. Employers should assess whether their current arrangements remain fit for purpose, whether they are managing group personal pensions, master trusts or other trust-based schemes.

The DC MOT report suggests that schemes could benefit from more frequent reviews: a notable proportion of employers have not assessed provider charges or governance structures for several years, despite the rapid changes in the market. In fact, the report identified that nearly one in five employers (18%) do not have a formal governance structure in place in the form of a trustee or governance committee, and among those that do, only 61% meet at least quarterly.

Greater competition between providers has reduced fees, which creates opportunities for employers to get more value - but only if they are actively looking for it. In many cases, value is not actively tested, with 44% of employers not reviewing member charges for three or more years.

This is why strong governance and oversight are essential to ensure schemes continue to deliver on employer objectives and member outcomes. 

Nearly half (45%) of employers have never asked their workforce whether they understand or value their pension. 

It is important to emphasise that even well-designed pension schemes will struggle to deliver value if employees neither understand nor engage with their pensions. While more than half of employers do communicate with staff about pensions at least once a year, this communication is not always effective. When employees understand how their workplace pension works and how it supports their future, they are more likely to contribute effectively and make better decisions.

Targeted communication during key life stages and career moments can play an important role in improving engagement. Many employers have never asked their workforce for feedback on their pensions - for example, whether they understand it - which restricts their ability to refine their schemes and deliver the best outcomes.

Pensions should not be interpreted as stand-alone products. They are an important part of a much broader benefits strategy, yet many employers have yet to integrate them into a broader savings framework. For example, ISAs or general investment accounts can complement pension saving to help employees achieve their short- and long-term financial goals.

As the pensions landscape continues to evolve, value must be actively delivered, not assumed. This means employers will need to take an increasingly structured approach to design, governance, and engagement to achieve stronger outcomes for their workforce.

Mercer’s DC MOT is an audit of your company’s pension practices. It benchmarks your scheme and broader benefits package against those of other UK employers that have completed our survey, and against Mercer’s view of best practice.

The results will help you understand how your benefits compare to those of your peers, as well as whether your business can save money, increase value and reduce risk in your benefits offering.

Learn more here or speak with your Mercer consultant.