Automatic enrolment minimum contributions set to rise

Automatic enrolment minimum contributions set to rise

The next stage of automatic enrolment will take place on 6 April, with minimum contributions set to rise from 2% to 5%.

The 3% rise in minimum contributions will see employers contribute 2% of qualifying earnings, while employees will stump up the other 3%.

An additional £6.4 billion will be added to UK savers’ pension pots in 2018/19, according to the Department of Work & Pensions.

Tim Gosling, policy lead for defined contribution at the Pensions and Lifetime Savings Association, said: “This step is vital because despite the success of automatic enrolment, the majority of people are still not saving enough to meet their retirement goals.”

“Workplace pensions remain the best, and simplest, way to save for a good income in retirement. And it is vital that people do not put off saving into a pension until later in life unless absolutely necessary. The longer people save the more they will benefit from employer contributions and the larger their final pot will be.”

Minimum contributions will rise again in 2019, to 3% for employers and 5% for employees.

The combined 8% contribution has raised fears that some workers might opt out of automatic enrolment, but Fidelity International research shows a significant yield difference depending on the contribution rates.

Those who stay on the 2% split until retirement could retire on £94,092, while employees on 5% would see their pension pots reach £235,229, according to Fidelity.

Carolyn Jones, head of pensions product at Fidelity International, said that despite “lots of noise about the cost to consumers”, auto enrolment still offers a return of nearly 350% on personal contributions.

 

Categories: News, UK Pensions

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