The average amount saved by employees in workplace pensions has fallen by 5.5% in the five years since the introduction of auto-enrolment legislation.
Figures from the Office for National Statistics (ONS) show that, despite the number of employees saving into a workplace pension rising to 41 million last year (up from 39 million in 2016), typical employee/employer contributions fell from a high of 9.7% in 2012 to just 3.4% in 2017.
Many employers who had workplace pensions before legislation made them compulsory were already paying above the minimums now required and so the latest statistics reflect a wider average. There is little evidence to show that employers have reduced contributions as a result of the auto-enrolment legislation.
Workers who are aged between 22 and state pension age and earning more than £10,000 a year are automatically enrolled into a workplace pension scheme.
Eligible employees and their employers currently make a combined minimum contribution of 5%, with the employer contributing a minimum of 2%. The minimum combined contribution is set to rise to 8% from April 2019, with employers contributing a minimum of 3%.
The ONS’s findings echo a recent report from the Treasury committee, which called on the government to raise contribution rates beyond 8% in 2019/20.
Mark Hodson, Associate Director of Omnium Employee Benefits argues that the increased minimums still do not go far enough: “The risk is that many people believe an 8% contribution will be sufficient for them in retirement, but this is simply not realistic.
“However, we need to be sensible in the current climate and understand that many employers simply cannot afford to pay more into pensions without some form of broader compensation such as reduced Corporation Tax.
“The key in the short-term, at least, is to improve communication so employees have a reasonable understanding of the value of their workplace pension and a realistic expectation as to what this will provide for them in retirement. We have come a very long way in the last few years in terms of workplace savings and we need to emphasise the positives.”
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If you are an employer looking to ensure that you are compliant with auto-enrolment legislation changes, or if you would like to discuss setting up an employee benefits package for your team, give Mark a call today on 01483 205890