Pension savers short-changed £40k by auto enrolment 'quirk'

Savers could be short-changed by as much as £40,000 unless changes are made to the way auto-enrolment minimum contributions are calculated. That is the claim made by Now: Pensions following the release of new analysis by the firm. Next month minimum contributions will rise from 5% to 8%, but, in reality, no auto-enrolled saver paying minimum contributions will be saving the full 8% because of the way contributions are calculated. On 6 April, the lower qualifying earnings threshold will rise by £104, meaning employees won’t receive auto enrolment minimum contributions on the first £6,136 of their earnings each year. Earnings over £50,000 won’t be included either. For somebody earning £25,000 a year, this means only £18,864 of their salary is counted when calculating their auto enrolment contribution. If minimum contributions remain at 8% of qualifying earnings, the average 25 year old male worker will see £125 per month (£1,497 per year) added to their pension pot, instead of £166 per month (£1,988 per year). The average 25 year old female worker will see just £111 per month (£1,342 per year) added to their pension pot compared to £153 per month (£1,833 per year). Over 40 years of saving, this would wipe £40,200 from the average pension, based on a 25 year old earning average salary.Adrian Boulding, policy director of Now: Pensions, said: “Auto-enrolment is helping 10 million people save for their future, which is a huge step forward. “But the way contributions are being calculated are leaving many short changed. “The rules are especially unfair for part-time workers who have the same £6,136 taken off their earnings as their full-time colleagues. “The Government has an opportunity to give auto enrolled savings a shot in the arm by changing the way contributions are calculated. “This is a measure we hope to see included in the Pensions Bill expected in the spring.”

Pension savers short-changed £40k by auto enrolment 'quirk'

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