You are here: Home - Retirement - Retirement planning - News -

Shunning workplace pension contributions could leave a £272k hole

Written by:
Contributions on workplace pensions are due to rise next month, from their current level of 2% (1% each from employer and employee) to 5%, split 3% from the employee and 2% from the employer.

Fidelity is urging investors not to opt out after its research showed that those who shun rising pension contributions could stand to lose over a quarter of million pounds over their working life and the equivalent of the state pension in annual retirement income.

Those who stay at the current level of 2%, split equally between employee and employer could potentially generate a pot of £94,092 by the time they reach retirement.

By paying the additional contribution from April, they could see this pot hit £235,229. This would cost only £35 a week for someone earning £35,000, as the benefit of employer money, tax relief and compounding work their magic.

The total contribution rate rises to 8% in April 2019. If employees keep paying in at that point, the pot could reach £366,445 – nearly three and a half times that of a person who chose to keep paying just 2%.

This will provide them with a significantly larger income in retirement. Consumers who do not increase contributions at all would get nearly £10,000 a year less than those who had persisted in saving in line with the increases

Total Pension Pot Personal Contribution Estimated income from pot at retirement2
2% (Current AE duty) £ 94,092 £21,506 £3,293
5% (Duty from April 2018) £ 235,229 £64,517 £8,233
8% (Duty from April 2019) £ 366,445 £ 107,241 £12,826

Carolyn Jones, head of pensions product at Fidelity International, said: “Recent commentary has focused on what consumers stand to lose next month and we need to turn this way of thinking on its head. Because consumers stand to lose a lot more – namely the equivalent of the Basic State Pension in annual income – if they fail to increase their contributions come April 2018.

“Auto-enrolment was a water shed moment as it changed the dial from ‘do nothing, get nothing’ to ‘do nothing, get something’. Saving for retirement is no longer an option – it is an essential period of life to plan for as the state begins to tussle with the challenges of an ageing society. While there is lots of noise about the cost to consumers, auto-enrolment – even with the uplift in contributions – still offers people a return of nearly 350% on their personal contributions thanks to a boost from their employer and tax relief.”

See the Your Money auto-enrolment guide here.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Insurance Experts: Are you fully insured? Click here to get a quote.

For a free quote or to speak with an insurance expert call 0800 1218744

The 20+ savings accounts that beat inflation

Inflation unexpectedly remaining flat in June was good news for savers who had been expecting the rate to rise...

Why you shouldn’t buy travel currency in the UK with your credit card

If you’re heading abroad this summer, exchanging money in the UK ahead of your travels is a sensible idea. But...

Online pension dashboard could be scrapped

Plans to introduce an online hub which would allow savers to view all their pension savings, including their s...

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week. Awards 2018

Now in their 21st year, our awards recognise the companies offering the best products and services to consumers

Money Tips of the Week

Read previous post:
Debenhams to launch currency sale and offers £5 shopping voucher

Debenhams Personal Finance will launch a currency sale this weekend in time for Easter getaways.