Auto-enrolment has provided a £2,400 boost to the nation’s pension pots five years after it was introduced, according to research from Aegon.
Aegon has calculated the estimated pension pot of an average income earner (£26,500 p/a) who started saving in October 2012. The research estimates that the average UK worker, making minimum contributions from October 2012, would now have a fund of £2,440.
As minimum contribution levels rise to 5% in April 2018, and then 8% in April 2019, the same individual would build up a fund of £11,430 by 2022, assuming a 4.25% investment growth.
Kate Smith, head of pensions at Aegon, said the results were positive. “Five years on, it is hugely encouraging to see that auto-enrolment is having the desired effect, improving the financial preparedness of workers right across the UK,” she said. “However, it’s important people don’t become complacent and think that they’re home and dry by simply paying the minimum contributions.
“Clearly, having some savings is better than having none, so those that have contributed 2% of ‘band earnings’ over the last few years are on the right track. But contribution levels do need to increase significantly if people are going to have enough to carry them through retirement comfortably.”
Smith added that people need to think very carefully before deciding to give up on pension savings and lose their employer’s contribution. “People in the UK are living longer, and social care costs are now falling at the feet of more and more retirees,” she said. “It’s essential that people plan for these sorts of eventualities, and as these figures show, just contributing a little bit more really pays off in the long run.”
Auto-enrolment was introduced by the government in October 2012 to reverse a decline in the number of pension savers. As soon as someone meets the eligibility conditions, they are automatically enrolled into a workplace pension and start saving a proportion of their salary, as well as receiving an employer contribution.
