New analysis by NOW: Pensions shows that savers will be £40,000 worse off in retirement unless changes are made to the way auto enrolment minimum contributions are calculated. This month minimum contributions will rise from 5% to 8%, but, in reality, no auto enrolled saver paying minimum contributions will be saving the full 8% because of the way contributions are calculated.
On 6 April, the lower qualifying earnings threshold will rise by £104, meaning employees won’t receive auto enrolment minimum contributions on the first £6,136 of their earnings each year. Earnings over £50,000 won’t be included either.
For somebody earning £25,000 a year, this means only £18,864 of their salary is counted when calculating their auto enrolment contribution.
If minimum contributions remain at 8% of qualifying earnings, the average 25 year old male worker would see £125 per month (£1,497 per year) added to their pension pot, instead of £166 per month (£1,988 per year). The average 25 year old female worker would see just £111 per month (£1,342 per year) added to their pension pot compared to £153 per month (£1,833 per year).
Over 40 years of saving, this would wipe £40,200 from the average pension as the table below, based on a 25-year-old earning average salary* for 40 years, illustrates.
| Male | Female | |
| 8% qualifying earnings | £ 165,082.69 | £ 134,164.95 |
| 8% all earnings | £ 205,288.97 | £ 174,371.23 |
Adrian Boulding, Policy Director of NOW: Pensions, comments: “Auto enrolment is helping 10 million people save for their future, which is a huge step forward. However, the way contributions are calculated is leaving many short changed.
“The rules are especially unfair for part-time workers who have the same £6,136 taken off their earnings as their full-time colleagues.
“The government has an opportunity to give auto enrolled savings a shot in the arm by changing the way contributions are calculated. This is a measure we hope to see included in the Pensions Bill expected in the Spring.”
Notes to editors
The effect of qualifying earnings on auto enrolment contributions based on an 8% total contribution:
| Job title | Annual salary | Actual contribution |
| Part time workers, shop staff, waiters / waitresses | £10,000 | 3.1% |
| Call centre agents, gardeners, cleaners, carers | £15,000 | 4.7% |
| Construction workers, clerical workers | £20,000 | 5.5% |
| Estate agents, nurses, prison officers, HGV drivers | £28,000 | 6.2% |
| Pharmacists, managerial positions | £50,000 | 7% |
*Average salaries via ONS
| Age band | Male (Weekly) | Female (Weekly) | Male (Annual) | Female (Annual) |
| 16 to 17 | £ 188.50 | £ 164.00 | £ 9,802.00 | £ 8,528.00 |
| 18 to 21 | £ 337.00 | £ 309.60 | £ 17,524.00 | £ 16,099.20 |
| 22 to 29 | £ 477.90 | £ 440.80 | £ 24,850.80 | £ 22,921.60 |
| 30 to 39 | £ 613.30 | £ 557.50 | £ 31,891.60 | £ 28,990.00 |
| 40 to 49 | £ 679.80 | £ 544.40 | £ 35,349.60 | £ 28,308.80 |
| 50 to 59 | £ 663.60 | £ 508.10 | £ 34,507.20 | £ 26,421.20 |
| 60 and over | £ 571.30 | £ 448.00 | £ 29,707.60 | £ 23,296.00 |
More information
| Samantha Gould – NOW: Pensions Email: pressoffice@nowpensions.com | Instinctif Partners Email: nowpensions@instinctif.com | Fenella Cuthbert – Cicero/AMO Tel: 0207 947 5327 Fenella.Cuthbert@cicero-group.com |