Employees and employers are still putting minimum contributions into auto-enrolment schemes despite the policy's success, Aegon has warned.
Research from Aegon found employees earning an average salary and making the minimum contributions to their auto-enrolment scheme would now have a retirement fund worth £3,353, becoming £16,251 over the next six years.
Aegon’s calculations are based on the contribution levels which are set to increase from 5 per cent to 8 per cent in April 2019.
Kate Smith, head of pensions at Aegon, said too many individuals and their employees were contributing the minimum into pension pots.
"Few people have opted out of pension saving following the April increase in the minimum contribution, but we shouldn’t be resting on our laurels as the total amounts saved by those paying the minimum are relatively small," Ms Smith said.
"Although some employers are going the extra mile, far too many people and employers are simply paying the minimum pension contribution, and even when this increases to 8 per cent, it’s not going to generate sufficient funds for most people to live on in later life.
"People are living longer, taking gaps in their working lives and social care costs are falling at the feet of more retirees. The harsh reality is that people need to save around 12 to 15 per cent of their earnings over their working like to cover all eventualities.
"If people, and their employers, choose to increase their contributions by even a small percentage each month, the long term investment returns will prove extremely beneficial."
Aegon’s analysis found an employee earning the UK’s average income who was auto-enrolled in October 2012 and contributed the minimum amount over the last six years, will have contributed £1,099 to their own pension, before employer contributions, government tax relief and investment returns are factored in.
Over the next six years to October 2024 this will increase to £6,395 in employee contributions.
Claire Trott, head of pension strategy at Technical Connections, said: "The issue with auto-enrolment is that it is too easy to do the minimum, as these increase it will help with pension savings as it will have eased many into the mindset of saving without it being such a shock to the system.
"It is still early days for auto-enrolment and the opt out rates are promising for bigger and better pensions in the future for many more people that would have missed out before."
Since auto-enrolment was introduced in October 2012, almost 10 million employees have been auto-enrolled into a workplace pension scheme, according to statistics published by the Office for National Statistics in May this year.
Over the last six years the minimum contribution shared between the employee and employer has risen from 2 per cent to 5 per cent.
rosie.quigley@ft.com
