Auto-enrolment contribution rise to boost pensions by 30%

Auto-enrolment contribution rise to boost pensions by 30%

An average earner could see their pension pot rise by 30 per cent by the end of year thanks to the increase in the minimum auto-enrolment contribution in April.

According to analysis by Aviva, some savers could potentially add £36,000 more to their pension fund at retirement due to the increase this year.

Auto-enrolment minimum pension contributions are currently set at 2 per cent – 1 per cent each for employer and employee.

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This will increase to 5 per cent next month, with the employee paying 3 per cent. In 2019 it will increase again to 8 per cent, with the worker paying 5 per cent.

Next year's increase could mean the same saver would have £101,000 at retirement, representing an additional £35,000 in their pension pot and more than triple the amount they would have under current contribution levels.

Andy Curran, managing director for corporate at Aviva, said: "Saving via a workplace pension is one of the rare times in life when doing nothing pays.

"Simply by remaining in their workplace pension scheme, savers can benefit from their employers topping up their savings and receive the added peace of mind that comes from knowing they are contributing to their long-term financial health.

"While the changes mean employees will also need to increase contributions from their own pay packet, making a small sacrifice now can add up to a big difference when it comes to retirement."

The provider’s research is based on a UK average salary of £26,572, an annualized return of 2.5 per cent before inflation on qualifying earnings, a pension start date of October 2012 (age 22) and end date of September 2058 (age 68). 

There are now more than nine million people auto-enrolled in a workplace pension scheme.

A total of £17bn a year will be going into workplace pensions by 2019 to 2020 because of auto-enrolment.

Mr Curran added: "Auto-enrolment has been an incredible force for good since its introduction in 2012 with more people than ever before now contributing on a monthly basis towards their retirement.

"It is vital the latest milestone is used as a basis on which to build further momentum around the need for people to save for retirement. If as a society we are to avoid a retirement savings crunch further down the line, we must go further still in the years to come."