Pension contributions to treble for millions from today

Pension deductions from pay will treble for more than four million employees from today. The change will see a £6.4bn increase in pension funding in 2018/19, with pension opt-out rates expected to double.According to the DWP, there are currently over 4 million employees who have been enrolled into a workplace pension and who are currently paying in less than 2% of their salary.From today, the statutory minimum pension contribution for auto-enrolled employees will increase from 2% of salary to 5%; of this employers will be required to increase their contributions from 1% to 2%. The result of this will be that employees see their own contributions increase from 1% to 3%. Someone earning £30,000 a year will see their pension contribution increase by a total of around £64 a month (including tax relief). For a 30-year-old, that additional contribution could be expected to increase their retirement pot by around £34,000.The current rate of opt-outs from pensions is around 9%, however the real figure is slightly higher as some people don’t leave within the window of the first weeks of being enrolled on which official opt-out rates are measured, but go on to leave their workplace pension further down the line. The DWP’s modelling is based on an actual opt-out rate of 10% of employees. They project that in 2018/19 this will increase to more than 21% of employeesTom McPhail, head of policy at Hargreaves Lansdown, said: “Everyone’s holding their breath to see how this plays out. “Pension savings rates have to increase and the sooner the better, but with so much uncertainty in the air at present, there are real concerns we could see people choosing to opt out of their pension rather than suffer the increase in their contributions.”He added: “The simple message for employees is keep saving for your retirement if you possibly can and save as much as you can. “You’re going to need savings to live on when you’re older and your workplace pension is the best place to build up those savings.”“The government, employers and the pensions industry need to focus on positive communication and engagement to help individuals get to grips with their retirement challenge. “The inertia of auto-enrolment has been very effective in getting savers into pensions, but it won’t be enough to keep them there or to make sure they get a decent retirement income at the other end.”

Pension contributions to treble for millions from today

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