When we published Balancing today and tomorrow in June, we set out a pragmatic approach to building an emergency savings element into the auto enrolment framework. In that blueprint, we highlighted the tensions that exist between different pension reform objectives, especially the challenge of increasing pension saving while ensuring the system remains accessible and beneficial for lower earners.
Since publication, we’ve had many thoughtful conversations with policymakers, employers, providers and industry experts. Over the coming weeks we will delve deeper into some of the issues and questions that have arisen through those conversations.
In this blog, we discuss what employers might stand to gain from the introduction of Pension-Adjacent Emergency Savings Accounts.
At the Centre for Inclusive Money at Nest, we have set out a route to a more adequate and inclusive pensions system: one that builds emergency savings into the auto enrolment framework. Pension-Adjacent Emergency Savings Accounts, or PAESAs, enable employee contributions to shift gradually from accessible cash savings into pension saving as earnings rise.
Given the scale of current adequacy concerns and the strength of inertia around pension saving, higher default minimum auto enrolment contributions, including higher employer contributions, are likely to need to be a feature of the landscape going forward. Our policy blueprint could technically be introduced with today’s default contribution rates. But we think the real value of PAESAs come when they are paired with a higher overall rate. In our blueprint, that would mean more flexible employee contributions are underpinned by a stronger employer contribution for all employees, from the first pound of earnings.
Any shift towards higher overall employer contributions needs careful consideration, especially around the timeline for implementation to ensure impacts can be smoothed over time. That is as true for our PAESA approach as it is any of the other many proposals that propose a shift to higher employer contributions. But the debate should not stop there. Before turning to how those costs could be mitigated, it is worth asking what employers might stand to gain from a model like this, especially compared with a simpler pensions-only approach in which employer contributions rise, but nothing changes on the employee side.
One of auto enrolment’s great strengths has always been its simplicity. The easier a system is to understand and administer, the more likely it is to work in practice. A model in which all employees are enrolled from the first pound of pay, removing both the Lower Earnings Limit (LEL) and the £10,000 earnings trigger, could make the system simpler for employers. It would reduce the need to keep assessing, month by month, who should be contributing and on which slice of earnings contributions should be paid.
There is also a fairness argument to removing the LEL and the earnings trigger. At the moment, employer pension support is not spread evenly across the workforce. Higher earners tend to receive a much larger contribution as a share of total pay than lower earners. For example, employees earning £70,000 or more typically receive employer contributions worth around 7% of total pay, while those earning between £10,000 and £20,000 receive closer to 2.2%.1 Our research has shown that this is not always intentional, only 6% of employers who offer more than minimum contributions for some or all of their employees say that the levels set were driven by modelling retirement outcomes or considering salary replacement rates for their employees.2 This suggests most employers are not systematically assessing who benefits from more generous contribution structures.
That unevenness matters because employer pension contributions are not costless. Over time, some or all of those costs are likely to be passed through in lower wages or higher prices. People who are not eligible for auto enrolment, who opt out, or who cannot take full advantage of more generous matching arrangements, may therefore end up helping to fund the contributions of those who remain enrolled or benefit most from matching incentives. If contribution rates simply rise within the existing structure, these inequalities could become sharper, particularly if lower earners are more likely to opt out. Under the PAESA model lower-income employees would receive stronger employer support, and in many cases, there is limited scope to offset that support – at least in the short-term – through lower wages because of minimum wage constraints.
There is a practical business case too. Employers do not benefit when their workforce is financially stretched. Evidence suggests that people who lack financial resilience, and who are worried about money, report lower productivity and performance. They are also less satisfied at work, less likely to stay in a job and more likely to be absent due to ill health.3 Building an emergency savings element into auto enrolment is therefore not just a social policy idea; it could support productivity, retention and engagement. Compared with an equivalent pensions-only increase, the overall cost-benefit case for employers may be stronger than it first appears.
However, none of this means the cost challenge disappears. In our working group discussions, including with employers, there was a clear recognition that employers may need to do more to support their employee’s retirement saving. But there was also a clear recognition of the pressures many businesses are already facing, from higher National Insurance contributions to large increases in the National Living Wage. That is why we see this as a future target model, not an overnight reform. As the Commission has argued, any changes to automatic enrolment must be affordable for businesses, individuals and the state, with significant notice, careful staging and a realistic timetable for implementation.4
The original rollout of automatic enrolment shows why this matters. Businesses were given clear notice of the policy direction in 2006, legislation followed through the Pensions Act 2008, and duties were then phased in slowly between 2012 and 2019. Larger employers came first, followed by medium, then small and micro employers. That long runway helped employers to build and integrate the operational and administrative systems needed to make auto enrolment work. Any move towards a more generous and more universal model would need the same kind of patience and pragmatism.
Alongside concerns about higher costs, some have questioned whether employee contributions to an emergency savings account would be enough to satisfy employers’ expectations of shared responsibility in pension saving. Recent research suggests that both employers and consumers tend to prefer models built around shared responsibility.5 It also points to concerns that non-contingent employer contributions could encourage some employees to stop saving themselves and instead receive ‘free money’, with possible consequences for retirement adequacy.
Our proposal addresses this by linking eligibility for the employer contribution to a qualifying employee contribution, either into a PAESA or a qualifying pension scheme, depending on the employee’s earnings. This preserves an element of individual responsibility: workers must still contribute to receive the minimum employer contribution. But it also captures some of the advantages of a non-contingent model, because more financially vulnerable employees would be able to keep their own contributions accessible.
Asking employers to do more will never be an easy proposition, especially at a time when many are already under pressure. But the question is not simply whether higher contributions cost more. It is whether they can enable a better, simpler and fairer system that helps employees build security for later life while also giving them more resilience today. PAESAs could make that trade-off more compelling for employers, by linking a stronger contribution offer to a workforce that is less financially stretched, more engaged and better supported. If the next phase of pension reform asks more of employers, it should also help deliver more for them in return.
Molly Broome – Research and Policy Lead
To find out more about our work on workplace emergency savings, visit:
https://www.inclusivemoney.org.uk/research-projects/workplace-emergency-savings
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1 Department for Work and Pensions (September 2025), Analysis of Automatic Enrolment saving levels.
2 Centre for Inclusive Money (2022), Employer pension contributions in the UK.
3 Centre for Inclusive Money (September 2026), The business benefits of workplace savings.
4 The Second Pensions Commission (May 2026), Pensions 2050: Evidence and Future Priorities.
5 Pensions UK (June 2026), Closing the gaps: Can flexible contributions make retirement savings more affordable?.