Saving £100 in a pension pot through a workplace pension scheme only requires an employee contribution of less than half that amount. Every £48 saved for a basic rate taxpayer is boosted by an additional £52 from their employer and the government. The boost for higher rate taxpayers is even greater.
The new auto enrolment contribution rates mean employees pay 3% from their April pay this year, while their employer puts 2% towards their pension. This means workers on an average UK wage of £28,600, will pay £45 every month but see a total of £94 go into their pension as their employer and government top it up by £493.
According to the government’s auto enrolment review, the current ‘opt out’ rate is less than 10%, but there are concerns that this may double as people notice a reduction in their take home pay. With contribution rates set to rise this year, choosing to opt out will effectively mean unclaimed pay rises for 2 million workers. Sticking with workplace saving remains the best option for their long-term interests.
Kate Smith, head of pensions at Aegon, said: “Auto enrolment brought pension saving for the first time to millions of people in the UK since it was launched in 2012. As the contribution rate increases, it’s important the value of long-term saving and free money workers get in return for their contribution isn’t overlooked. Even the highest interest savings accounts on the high street can’t beat workplace saving.
“Extra employer contributions into a workplace pension is like a pay rise, and it’s unlikely anyone would turn that down. We hope people recognise the need to make personal savings for retirement and see that a workplace pension is the best way to put their money to work and save for retirement.”
• Workplace pension savers in line for £5 billion pay rise this April
• 2 million workers2 could miss out if they choose not to be part of a workplace pension
• Auto enrolment minimum contributions increase to 5%
• Employees double their pension money by continuing to save in workplace saving schemes
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