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Auto-enrolment sees three-quarters of employees saving for retirement

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The proportion of employees contributing to a company pension, particularly among younger and lower paid workers, has grown rapidly, according to data from the Office for National Statistics.

In 2017, 73% of employees were contributing to a company pension scheme, up from 47% in 2012. This means almost ten million extra people are contributing to a pension scheme because of auto-enrolment.

However, the report sounded a note of caution, stating that pension contributions had “clustered” at the minimum levels required by law. This moved to a combined 5% of pensionable salary from employer and employee in April, from 2% previously.

Andy Tarrant, head of policy at The People’s Pension said the decline in average contribution rates was worrying: “While today’s figures from the ONS confirm continued progress in the auto-enrolment project, average contribution levels remain low. Notwithstanding the April increases to minimum contribution rates for both employers and employees – which marked a critical next-step for UK workplace pensions saving – the decline in average contribution rates since 2012 should be cause for concern.

“Driving home key messages around the importance of long-term savings, the power of compound interest and personal accountability must remain a priority for both the pensions industry and employers.”

Steve Webb, director of policy at Royal London, said: “Nearly half of all employers were contributing the bare minimum of 1% of wages in 2017, and it seems likely that they will continue to contribute at the legal minimum level as contribution rates rise into 2019. A combined contribution rate of 8% between worker and firm is simply not good enough for most people.

“The hard work of automatic enrolment will be in supporting workers and firms to get these contributions up to more realistic levels. The single most important thing that the government could do would be to ensure that when people get a pay rise they automatically increase their contribution rate unless they actively opt out. We know that this approach works in the US and it is time to do the same in the UK if we are to avoid a generation of workers who will simply be unable to afford to retire.”

See YourMoney’s Auto-enrolment: what you need to know and Pension contributions to rise for more information.

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