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.