Those who choose to avoid raising pension contributions post April 2018 could potentially lose out on over £250,000 over the course of their working life, according to Fidelity International.
Auto-enrolment is scheduled to increase from 2% to 5% in April 2018, but those who choose to maintain the current 2% would have saved an average of £94,092 by the time they reach retirement. However, those who follow the increase to 5% could see a pension pot of £235,229, based on an individual earning £35,000 per annum.
The contribution rate is further set to increase in April 2019, rising to 8%, meaning that individuals could possibly save £366,445 – almost 3.5 times the amount saved following a 2% contribution scheme.
This would prove to have a significant impact on retirees, with those who chose not to follow the increase receiving almost £10,000 less per year than those who did; the equivalent of not receiving the current basic state pension.
Fidelity International head of pensions product Carolyn Jones said: “Auto-enrolment was a water shed moment as it changed the dial from ‘do nothing, get nothing’ to ‘do nothing, get something’. Saving for retirement is no longer an option - it is an essential period of life to plan for as the state begins to tussle with the challenges of an ageing society. While there is lots of noise about the cost to consumers, auto-enrolment - even with the uplift in contributions - still offers people a return of nearly 350% on their personal contributions thanks to a boost from their employer and tax relief.
“We cannot forget that auto-enrolment was always viewed as achieving the bare minimum for private pension saving, a baseline on which to build additional saving. Opting out come April 2018 will see a loss of valuable employer contributions that they, quite simply, cannot get elsewhere. Any short term cost saving now will shrink in light of the valuable benefits you could have had later.”
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