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Signing up to a pension scheme before auto-enrolment could see pots £10,000 better off

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Signing up to a pension scheme ahead of auto-enrolment could see some savers with pension pots worth £10,000 more than savers waiting to be enrolled, according to Fidelity Worldwide Investment.
Signing up to a pension scheme before auto-enrolment could see pots £10,000 better off

Julian Webb, head of DC & workplace savings at Fidelity Worldwide Investment, said: “Prospective pension savers should check out their current workplace pension scheme arrangement before auto-enrolment is implemented at their company. 

“There may only be a small window to benefit from higher employer pension scheme contributions, so be proactive and consider your options before you are auto-enrolled.”

Up until now, many employers have weighted higher contributions towards those employees who are willing to contribute more themselves.

But when auto-enrollment is rolled out this may no longer apply as some employers may replace their existing contribution structures with the Government’s auto-enrolment contribution rates.

Auto-enrolment will initially see employees from the UK’s biggest companies automatically be entered into their workplace pension schemes from 1 October, and will extended out to all other employers over the coming 5 years..

The current average employer contribution rate is approximately 6.2% of salary and the current employee contribution rate is approximately 2.7% of salary for occupational pension schemes.

In comparison, the Government’s legal minimum employer contribution rates start at 1% from the employer and 1% from the employee.

This means an individual on average earnings of £26,200 could receive almost £2,000 in pension contributions (employee and employer combined) in their first year of saving if they voluntarily join their company pension ahead of auto-enrolment being rolled out at their workplace.

This is compared to £400 if he or she is auto-enrolled at the minimum level. In 10 years’ time, this could amount to almost £23,000 compared to £12,000 if he or she was automatically enrolled.

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