On the go: More than a quarter of workers are unaware of auto-enrolment increases taking effect from Saturday, according to Aviva research.
From April 6, minimum auto-enrolment pension contributions will increase to 5 per cent of qualifying earnings from the employee and 3 per cent from their employer for ‘eligible’ UK workers – generally those earning more than £10,000 a year and aged between 22 and state pension age.
Previously, the minimum level stood at 3 per cent from the employee and 2 per cent from the employer.
A typical 25-year-old, on the national average wage, who is in a company defined contribution pension scheme using the minimum contribution rates, will now pay about an extra £31 a month. After income tax and national insurance changes, their monthly take-home pay will fall by around £18 a month – or the equivalent of giving up two cups of coffee a week, according to Aon.
After the increase to company contributions and taking into account tax relief, the change will mean an extra £58 per month is paid into employees' pension pots. Aon calculates that this could result in around an extra £55,000 in today's money in an individual’s pension pot at retirement.
Sophia Singleton, partner and head of DC consulting at Aon, said: “There has been much talk that employees might opt out from this increase – that they might be scared off by the reduction in take-home pay. But Aon's experience is that schemes that have already moved to default employees to the maximum company-matching level have found more than 70 per cent have remained at that maximum level.”
Alistair McQueen, head of savings and retirement at Aviva, is sanguine: “The fact that our survey shows only a small proportion of people say they will definitely opt out is great news.
"It’s a testament to the efforts everyone has made over the past six years that saving in a workplace pension has become the norm.”
