Employer contribution gap can lead to £100k pot difference- Aegon

The impact of employer contributions at either 3 per cent or 6 per cent has been calculated as a £95,750 gap for those on the average salary, according to Aegon.

Calculations by the insurer show that a 30 year-old employee on an average salary of £27,000 receiving the statutory minimum employer contribution of 3 per cent would be £95,750 worse off at state pension age (68 years old) compared to employee of the same age and on the same salary with a 6 per cent employer contribution. The figure is equivalent to more than three years of initial salary.

The Aegon analysis assumes an earnings increase at 2 per cent a year and investment growth on the funds of 4.25 per cent a year after charges. In both cases the employee contribution is the same - the auto enrolment level of 4 per cent which benefits from government tax relief of 1 per cent.

At state pension age this would give a total fund value of £255,333 for those who receive 3 per cent employer contributions. For those with a 6 per cent employer contribution the total fund value at age 68 would be £351,083.

Aegon pensions director Steven Cameron said: “Some employers promote their more generous pension scheme rather than headline salary as a means to attract new staff. It is important job changers take this into account as a higher salary isn’t necessarily better if it comes with a lower pension contribution.”

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