LONDON, March 18, 2025 – A new report by Towers Watson, a WTW business, has found that 76% of employers offer alternative cash benefits to high earners in lieu of pension contributions.
The WTW Annual Allowance and Other Pension Taxes Survey 2025, which polled 88 UK employers also found that, despite the abolition of the pensions Lifetime Allowance (LTA), many employers continue to offer high earners the chance to opt out of pension provision altogether.
Helen Perrin, Head of Financial Planning UK at Towers Watson commented: “Many employers have stopped short of requiring employees to make pension savings up to their Annual Allowance before they can benefit from cash alternatives. However, we are seeing employers engage with previous LTA opt-outs to encourage them to review their options. Employers can leverage the employer-arranged pensions advice exemption to offer the first £500 of pensions guidance or advice tax-free, ensuring that all their employees are well-prepared for the future.”
Where employers choose to offer alternatives to pensions, cash is the most popular form, with 91% of these employers offering cash as an alternative to Defined Contribution (DC) pension contributions and 72% of these employers offering cash instead of Defined Benefit (DB) arrangements.
“With employer NICs increasing to 15% from April 2025, many employers plan to cut the cash top-up further to allow for this.”
Helen Perrin | Head of Financial Planning UK, Towers Watson
More than half of these employers reduce cash payments to cover the cost of employer National Insurance Contributions. This trend is more pronounced among Defined Contribution (DC) employers with 55% making adjustments, compared to 27% of Defined Benefit (DB) employers.
Perrin explains: "National Insurance Contributions (NICs) are payable on any cash top-ups, meaning the cost to the employer of providing cash is higher than an equivalent pension contribution. To keep things cost neutral for employers, more than half of those who offer cash top-ups offset the extra cost of employer NICs by reducing the cash value. With employer NICs increasing to 15% from April 2025, many employers plan to cut the cash top-up further to allow for this. For example, an employer might offer the choice between a 10% pension contribution or an 8.7% cash allowance from April 2025."
At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance.
Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you.
