Kate Smith, head of pensions at Aegon, says: "It's important the value of long-term saving and free money that workers get in return for their contribution is not overlooked.
"Even the highest interest savings accounts on the high street cannot beat workplace saving."
Contributions and taxation
It should also be noted that, under auto-enrolment, contribution levels are set to rise this year, as contributions are hiked from a total of 2 per cent (employer and employee) to 5 per cent in April.
This means for an average UK salary of £28,000, workers will pay £45 every month into a pension but with the employer uplift, this will mean £94 in total a month will be saved.
Next year, 2019, will see a rise to 8 per cent contribution rates. Some sceptics fear this could lead to an increase in the amount of people opting out (currently just less than one in 10).
Ms Smith adds: "Extra employer contributions into a workplace pension is like a pay rise, and it is unlikely anyone would turn that down.
"We hope people recognise the need to make personal savings for retirement and see that a workplace pension is the best way to put their money to work and save for retirement."
Admittedly the majority of people on auto-enrolment pensions are unlikely to be the sort of high earners being targeted by the government's annual limits on pension contributions, so an uplift of this level will not affect their tax position.
However, it could positively affect their total retirement income. Research carried out earlier this year by Aviva found even a boost from 2 per cent to 5 per cent this year could see an annual boost of 30 per cent growth in their pension pots.
This could mean the average employee who began saving into a workplace pension when auto-enrolment started could end up with £36,000 more in their pension pot on retirement as a result, the Aviva research suggested. The table, below, highlights how this could work.
Table 1: Increase in AE pension contributions boosts UK pension pots
Minimum total contribution (%) | Pension fund value at retirement based on minimum contributions | Increase in total pension fund |
Until 5 April 2018 – 2% | £30,000 | - |
6 April 2018 – 5% | £66,000 | £36,000 |
6 April 2019 – 8% | £101,000 | £71,000 |
But Andy Curran, managing director of corporate at Aviva, says even 8 per cent will not go far enough, adding: "It is vital the latest milestone is used as a basis on which to build further momentum around the need for people to save for retirement.
"If as a society we are to avoid a retirement savings crunch further down the line, we must go further still in the years to come.”
Pension freedoms
In April 2015, the pension freedom and choice regime came into force, meaning people now have the right to take their pension pot how they like it at age 55.
