An average earner making minimum auto-enrolment contributions since October 2012 will have built up a fund of £2,440, but will more than quadruple their pot over the next five years, according to figures from Aegon.
Over the next five years, as minimum contributions rise to 5 per cent in April 2018, and 8 per cent in April 2019, someone on an average income of £26,500 making minimum contributions would build a pot of £11,430, from £4,600 of personal contributions, assuming investment growth of 4.25 per cent going forward. The provider says increasing contributions to 10 per cent this month would generate a £15,420 pot in five years, more than doubling to £33,480 after 10 years.
The average earner’s £2,440 pot comprises £786 from employee contributions, £983 from employer contributions, £197 from government tax relief, and £474 accrued through investment returns.
Aegon head of pensions Kate Smith says: “Clearly, having some savings is better than having none, so those that have contributed 2 per cent 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. ”