Rise in auto enrolment contributions 'will be accepted by most savers'

04 Mar 2019

April's increase in auto enrolment contributions is unlikely to have a significant impact on the number of people saving into a workplace pension, according to a new analysis by Royal London.

Following last year's increase from 1% to 3%, minimum employee contributions will increase to 5% on 6 April 2019.

In a policy paper, Royal London looked at the likelihood of large numbers of people dropping out of auto enrolment when contributions go up next month. Its analysis takes into account the impact of last year's increase as well as a range of factors influencing overall take-home pay this year.

The mutual insurer said that in addition to the increase in minimum pension contributions, take-home pay in April 2019 will be affected by changes to income tax and National Insurance and the increase in the National Living Wage.

A typical worker who gets an average pay rise in April will still see their take-home pay go up next month -- even allowing for the increased pension contributions. Those who get no pay rise will see a drop of around 1% on average, but this is much smaller than would have been the case without the increase in the personal allowance.

What's more, looking at 2018, there is no evidence that the contribution increase drove people away from pension saving.

Overall, the company concluded that the rise in contributions in April 2019 will be implemented successfully, with few people choosing to drop out.

"The figures suggest good reason to be optimistic about the impact of the next step-up in contributions," said Royal London director of policy Steve Webb.

A separate analysis by NEST Insight reached a similar conclusion, but also warned that many people aren't sufficiently engaged in saving for their retirement and have given little thought as to whether they're contributing enough.

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