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28 Sep 2016

Average UK pension contribution at just 4%

Figures from the Office for National Statistics have revealed that the average pension contribution in the UK is currently just 4% of yearly income, according to AOL Money.

This is despite auto-enrolment pushing workplace pension membership to an all-time high.

‘Auto-enrolment´ is a government-led workplace pension scheme that you are automatically enrolled into if you earn above the minimum threshold (£10,000) and are over the age of 22.

Auto-enrolment began being rolled out with larger employers in 2012 and finishes rolling out to smaller employers in 2018.

Initially, contributions started at just 2% (0.8% for employees, 1% for employers and 0.2% tax relief).

Critics have been quick to point out that 2% is not enough to make a significant contribution to a pension pot – even 8% might not be enough to live comfortably in retirement.

In 2018, contributions are due to increase to 5% of earnings (2.4% from employees, 2% from the employer and 0.6% tax relief). They will then increase in 2019 to 8% of earnings (4% from the employee, 3% from the employer, with 1% tax relief).

Steve Webb, former pensions minister and director of policy at Royal London, told AOL Money: “A combined contribution rate of three or four times this size is likely to be needed for most workers to have something approaching a comfortable retirement. It is quite clear that mass membership of pension schemes through automatic enrolment is just the start of a very long journey.”

These findings are particularly concerning for those who have been auto-enrolled into a workplace pension halfway through their career; however, even paying 8% of your salary into your retirement from the age of 22 may not be enough to secure a decent retirement.

The AOL article recommends using an online pensions calculator to work out how much you will have to live on in later life, based on your current rate of saving.

Copyright © M2 Bespoke 2016

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