Three-quarters (76%) of UK employers said they offer alternative cash benefits to pensions for employees restricted by annual pension allowance, according to new research by Towers Watson, a Willis Towers Watson (WTW) business.
The WTW Annual allowance and other pension taxes survey 2025, which polled 88 UK employers, found that despite the pensions lifetime allowance (LTA) abolition, employers said they will continue to allow high-earners to opt out of pension provision altogether.
Where employers choose to offer alternatives to pensions, cash is the most popular form, with 91% offering it as an alternative to defined contribution (DC) pension contributions and 72% offering it instead of defined benefit (DB) arrangements.
More than half of these respondents said they will reduce cash payments to cover the cost of employer national insurance contributions (NICs), with 55% of DC employers and 27% of DB employers planning to make adjustments.
The research found that while most restricted contribution options start at £10,000, some employers enable high-earners to increase pension savings through regular contributions or bonus sacrifice.
Employers are providing support to help employees manage pension contributions and understand options for retirement saving using alternative tax-efficient vehicles. This includes fact sheets (72%), webinars (36%), individual guidance (23%) and individual financial advice (11%).
In addition, 87% plan to review their death-in-service arrangements in preparation for the upcoming changes to inheritance tax on pension death benefits from April 2027.
Helen Perrin, head of financial planning UK at WTW, said: “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.
“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.”
