Auto-enrolment is having the “desired effect” in improving the financial preparedness of workers across the UK, Aegon has said.

According to new analysis from Aegon, the first wave of employers taking part in auto-enrolment, with two per cent minimum contributions would have accrued a pension pot of £2,440.

As October marks five years since the workplace pension saving initiative was launched, Aegon has found that an individual on an average income of £26,500 in 2017/18, who was auto-enrolled in October 2012, paying the minimum two per cent of their income and receiving average investment returns per year would now have a fund of £2,440. This would comprise of £786 from employee contributions, £983 from employer contributions and £197 from government tax relief, as well as £474 from investment returns.

Furthermore, with minimum contributions set to rise to five per cent in April 2018 and eight per cent in April 2019, those choosing to remain enrolled for the coming five years will have generated a pot of £11,430, Aegon noted. This total could be achieved by 2022, assuming a 4.25 per cent investment growth. From this pot, £4,600 would be from employee contributions and the additional £6,830 would be added from a combination of employer contributions, tax relief and investment growth, the analysis found.

While these savings assumptions are positive, Aegon added that it is hoped that individuals and their employers will contribute more than the required minimums.

The research stated that if an average earner saving two per cent since 2012 and increasing their combined contribution to 10 per cent this month would grow their pot to £15,420 over the next five years and more than double to £33,480 in a decade.

Aegon head of pensions Kate Smith said: “Five years on, it is hugely encouraging to see that auto-enrolment is having the desired effect, improving the financial preparedness of workers right across the UK. However, it’s important people don’t become complacent and think that they’re home and dry by simply paying the minimum contributions. Clearly, having some savings is better than having none, so those that have contributed 2% of ‘band earnings’ over the last few years are on the right track. But contribution levels do need to increase significantly if people are going to have enough to carry them through retirement comfortably.

“The good news is that minimum contribution levels are set to rise from next April, so people will soon be saving more unless they choose to opt out. But people need to think very carefully before deciding to give on pension savings and lose their employer’s contribution. People in the UK are living longer, and social care costs are now are falling at the feet of more and more retirees. It’s essential that people plan for these sorts of eventualities, and as these figures show, just contributing a little bit more really pays off in the long run. An adviser can help arrive at the right contribution to meet retirement aspirations."

Aegon noted that these figures are just examples and are not guaranteed.

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