"While AE has transformed pension saving, those relying solely on minimum contributions may find themselves falling short of the retirement they desire."
- Ian Futcher, financial planner at Quilter
New pensions minister, Torsten Bell, has confirmed that all automatic enrolment (AE) thresholds for 2025/26 will be maintained at their 2024-25 levels.
This means that the automatic enrolment earnings trigger will remain at £10,000, the lower earnings limit of the qualifying earnings band will remain at £6,240, and the upper earnings limit of the qualifying earnings band will remain at £50,270.
Damon Hopkins, head of DC workplace savings at Broadstone, said: “Given the delay to the second part of the Government’s Pension Review that was set to be on pension adequacy, it is of no surprise whatsoever to see the auto-enrolment thresholds maintained for 2025/26.
“The update is a reminder of some of the successes of auto-enrolment with the DWP estimating that the overall level of pension contribution will be nearly £90 billion in 2025/2026 under these thresholds.
“Ultimately, however, we know that most workers are not currently saving nearly enough for later-life and urgent change is needed to ensure people can achieve a comfortable retirement. The pension sector is seeing rapid innovation in a number of different areas but we would like to see a greater focus on more tangible initiatives and policy which can materially improve retirement incomes of future retirees.”
Ian Futcher, financial planner at Quilter, commented: "Torsten Bell has unsurprisingly decided to maintain the automatic enrolment (AE) thresholds given the upcoming changes to employer National Insurance Contributions and the continued financial strain many people are suffering. While freezing the thresholds provides stability for both employers and employees it still a missed opportunity to drive higher contributions that could secure better retirement outcomes for millions of workers.
"The Government's decision puts the onus on individuals to ensure they’re saving enough for their future. While AE has transformed pension saving, those relying solely on minimum contributions may find themselves falling short of the retirement they desire. Small increases now, even as little as 5%, could be the difference between a retirement of necessity and one of choice and comfort."
Quilter's analysis demonstrates the impact that small increases in contributions can have over time:
• Saving at the minimum contribution level from age 20 to 67 (on an average UK salary of £34,788) results in a pension pot of £211,240, providing an annual income of £26,287. This just meets the PLSA’s ‘minimum’ retirement living standard, which allows for £50 on groceries, no car, and a basic UK holiday.
• Increasing contributions by 5% from age 35 boosts the retirement pot by £73,118, resulting in a total fund of £284,358 and an annual income of £31,405. This shifts a saver into the PLSA’s ‘moderate’ category, affording a more comfortable lifestyle, including a small car and a Mediterranean holiday.
• Increasing contributions by 5% at age 45 raises the pot by £44,585, producing a total fund of £255,825 and an annual income of £29,408.
• Increasing contributions by 5% at age 55 adds £21,087, leaving a pot of £232,327 and annual income of £27,763.
