Aegon calls for AE contributions boost

Employees and employers need to keep stepping up auto-enrolment (AE) contributions in April to boost retirement outcomes, according to Aegon.

There will not be a change in AE minimum contribution levels this April, unlike rises in the last two years that have seen total minimum contribution rates climb from 2 per cent to 8 per cent of qualifying earnings.

Based on its own research and a report from The Investing and Saving Alliance, Aegon commented that an 8 per cent contribution was “very unlikely to provide the level of income in retirement most people aspire to”.

Aegon said that if an average 25 year old employee contributed an extra 2 per cent above the minimum contributions rate, which was matched by their employer, they could have an additional £87,700 at state pension age, for an initial extra £28 coming out of monthly take home pay.

Aegon added that upping contributions could still lead to a “significant” boost for those in their 30s or 40s, with a 2 per cent lift in both employee and employer contributions providing the average 40 year old an extra £44,000 of retirement savings.

Aegon pensions director, Steven Cameron, said: “Since its introduction in 2012, auto-enrolment has been highly successful in kick-starting the retirement savings of millions of employees. It’s encouraging very few employees have ‘opted out’ when their personal contributions increased from 1 per cent of qualifying earnings to 3 per cent in 2018 and 5 per cent in 2019.”

Cameron added that, while the current minimum contribution could seem like “a significant amount of money”, saving this amount was likely to leave most people with “a significant shortfall if they want to maintain their lifestyle in retirement”.

“With no statutory rise this April, we are encouraging employees to consider voluntarily stepping up their contributions and for employers to offer to match this. Employers can use this to demonstrate they are prepared to go the extra mile when it comes to helping with employee pensions, rather than simply doing the minimum,” noted Cameron

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