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Are The Auto-enrolment Minimum Contributions Too Low?

Are The Auto-enrolment Minimum Contributions Too Low?

Are The Auto-enrolment Minimum Contributions Too Low?

The introduction of statutory workplace pensions has had a significant impact on pension savings across the UK. In 2022, it was reported that 88% of employees were eligible for membership of their employer’s workplace pension scheme, equating to 20.4 million people. While this figure is complemented somewhat by the high take-up in the public sector, it is still very impressive.


Breakdown of workplace pension participants

If we look back to 2012 and the introduction of auto-enrolment, the number of eligible employees for their workplace pension was split as follows:-


  • Private sector 42%
  • Public sector 90%
  • Overall 55%


By 2022, the split had improved to:-


  • Private sector 86%
  • Public sector 92%
  • Overall 88%


While the long-term benefits of pension plans are well documented, it is only when you begin drawing down income in retirement that you feel the benefit in your pocket. Auto-enrolment, with minimum contributions, is at the heart of the concept.


Workplace pension minimum contributions

As part of a workplace pension, there is a minimum contribution of 8%, which consists of payments from different parties:-


  • Employer 3%
  • Employee 4%
  • Tax relief from the government 1%


While the combined 8% figure and the minimum employer and employee payments are set in stone, these can be increased by mutual agreement. Many employers use their workplace pension scheme as an enhanced form of employee benefit, increasing their contributions to improve employee retention.


Changes recommended by the Association of Consulting Actuaries (ACA)

The ACA has recently been vocal regarding recommended changes to auto-enrolment and other areas of the pension industry. Described as a “pensions and savings manifesto”, an accompanying document published by the ACA goes into great detail.


Minimum contributions

The recent bout of double-digit inflation has significantly increased the cost of living and the level of income required in retirement to deliver a “comfortable” lifestyle. Consequently, the ACA is recommending an increase in minimum auto-enrolment contributions to 12%. The idea is that this would be staggered over the next ten years, minimising the short-term impact on employee and employer finances but setting foundations for enhanced income in retirement.


Sidecar savings

This is a novel concept: a savings plan where funds would be automatically deducted from your salary in a similar fashion to pension contributions. However, the funds would be placed into a savings account (from which an employee can make withdrawals), which is linked to your workplace pension plan but not initially invested. The idea is that employees would set a target savings level, and when this is reached, all future payments would be switched to their pension with the appropriate tax relief.

Research conducted by NEST in 2021 highlighted the strong link between voluntary savings and long-term financial well-being/resilience. Will the authorities act on this data?


Political interference

The document also highlighted the challenges of political interference, suggesting that a potential incoming Labour government should avoid any knee-jerk reaction to recent changes by the current government. There have already been rumours and counter-rumours that Keir Starmer will reverse recent changes regarding the lifetime allowance, but time will tell. The reason the ACA would prefer no changes in the short to medium term is simple: to allow pension advisers and their clients to plan for the future with a degree of confidence.



When automatic enrollment was introduced in 2012, there were 11 million eligible employees. Fast-forward to 2022, and there are now 20.4 million people actively participating in their workplace pension scheme. However, during this time, the cost of living has increased significantly, as have the levels of income required to support a basic, moderate, or comfortable lifestyle in retirement.


As wages generally tend to lag inflation, the ACA request for an increase in the minimum contribution requirement seems valid, as does the suggestion of a sidecar savings plan. It will be interesting to see how the next government react to this changing environment and the recommendations in the ACA manifesto.

As a rule of thumb, pension contributions should be increased in line with inflation each year. In theory, this should help to maintain and even enhance your long-term spending power as a consequence of compound returns. If you would like to discuss your pension contributions, retirement plans, and wider finances in more detail, please call us, and we can look at the options available.