21 January 2025
If you are covering the review of the automatic enrolment earnings trigger and qualifying earnings band, please see the following comment from Ian Futcher, financial planner at Quilter:
"Torsten Bell has unsurprisingly decided to maintain the automatic enrolment (AE) thresholds given the upcoming changes to employer National Insurance Contributions and the continued financial strain many people are suffering. While freezing the thresholds provides stability for both employers and employees it still a missed opportunity to drive higher contributions that could secure better retirement outcomes for millions of workers.
"The Government's decision puts the onus on individuals to ensure they’re saving enough for their future. While AE has transformed pension saving, those relying solely on minimum contributions may find themselves falling short of the retirement they desire. Small increases now, even as little as 5%, could be the difference between a retirement of necessity and one of choice and comfort.
"Our analysis demonstrates the transformative impact that small increases in contributions can have over time:
- Saving at the minimum contribution level from age 20 to 67 (on an average UK salary of £34,788) results in a pension pot of £211,240, providing an annual income of £26,287. This just meets the PLSA’s ‘minimum’ retirement living standard, which allows for £50 on groceries, no car, and a basic UK holiday.
- Increasing contributions by 5% from age 35 boosts the retirement pot by £73,118, resulting in a total fund of £284,358 and an annual income of £31,405. This shifts a saver into the PLSA’s ‘moderate’ category, affording a more comfortable lifestyle, including a small car and a Mediterranean holiday.
- Increasing contributions by 5% at age 45 raises the pot by £44,585, producing a total fund of £255,825 and an annual income of £29,408.
- Increasing contributions by 5% at age 55 adds £21,087, leaving a pot of £232,327 and annual income of £27,763.
"These figures underline the importance of acting early to maximise the benefits of compound growth, tax relief, and potential employer matching contributions but also how transformative evolving AE could be.
"Until reforms to raise minimum contributions are enacted, it’s essential that workers regularly review their pension contributions and take proactive steps to secure the retirement lifestyle they envision."
