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29 Aug 2017

Millennials will stick with auto-enrolment when contributions rise

Automatic enrolment into a workplace pension is popular with Millennials, according to new research by Royal London.

The life, pensions and investment company surveyed 1,500 people aged 25-34, revealing that seven in ten (71%) decided not to opt out after being enrolled and a further 8% opted out of a workplace pension scheme but then went back in.

Three quarters (75%) of those who have an auto-enrolment pension said they would increase their pension payments automatically in line with a pay rise.

The research also showed that future increases to pension contributions will not lead to these employees opting out.

Currently, the minimum auto-enrolment contribution is 2% of qualifying earnings, with the employer and employee each paying 1%.

From April 2018, minimum contributions rise to a total of 5% — at least 2% from the employer and the remaining 3% from the employee. A year later, in April 2019, they increase again to 8% — 3% from the employer and 5% from the employee.

In the Royal London survey, if the total contribution increased to 5%, with a 3% contribution from their employer and a 2% contribution from them, nearly three quarters (74%) said they would continue to save in their pension. If total contributions increased to 8%, with the employer paying 3% and the employee 5%, then those prepared to continue to save dropped to nearly two thirds (62%). However, if the increase in contributions was to 8%, but contributions were matched — 4% from the employer and 4% from the employee — then those willing to continue to save jumped back up, with over three quarters (76%) saying they would continue to save in their pension.

Commenting on the findings, Jamie Clark, pensions business development manager at Royal London, said: “It´s encouraging to see that auto-enrolment is welcomed by Millennials and that the potential concern that many would opt-out when the increases come into effect next year appears to be misfounded. Over half (57%) told us that they know that they should be saving more into a pension.”

Royal London also stressed that employers have an important role to play in ensuring that employees can take advantage of every saving opportunity available to them, for example by matching or increasing the contributions they make to a workplace scheme or by allowing workers to sacrifice part of their salary or a bonus as a pension contribution.

Copyright © M2 Bespoke 2017

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