Employers generous with auto-enrolment contributions

Employers are contributing more to employee pension pots than is legally required under auto-enrolment, research by the Chartered Institute of Personnel and Development (CIPD) has found.

The survey of more than 1,000 employers found that the average employer contribution rate is 5.6% of salary and the average employee contributes 4.7%. The legal requirement is that employers and employees contribute 1% of salary each.

The research found:

  • 59% of employees contribute less than 6% of their salary
  • 25% of public sector workers give less than 6% of their salary
  • 72% of private sector workers contribute less than 6% of their salary
  • the average employer contribution in the private sector is 4.5% and average employee contribution is 3.9%.

The study found that average opt-out rates were below government forecasts. The Department for Work and Pensions originally predicted opt-out rates of 30%. However, the CIPD found that 7.4% have chosen to opt-out of the scheme.

The survey also revealed that many businesses are carrying out checks and reviews to make sure their schemes are fit for purpose:

  • 70% of employers check their scheme meet auto-enrolment requirements
  • 57% examine the best ways to communicate with employees about pensions
  • 57% review payroll procedures for auto-enrolment
  • 55% check that the pension scheme meets the needs of employees.

Charles Cotton, performance and reward adviser at the CIPD, said:

“[Auto-enrolment] has been the wake-up call we needed to get the UK saving for the future. Employers are in many cases going above and beyond the requirements and the majority of workers have opted to stay in the scheme.

“However, in the coming months, we need to keep a close eye on the number of workers leaving the pension scheme and what can be done to encourage them to stay. We also need to explore ways that we can increase the amount of money going into saving for retirement.

“To do this, it’s essential that employees are encouraged to look at their employer’s pension contribution as well as their take home pay when thinking about their total earnings.”

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