Most workers fail to pay more into pensions after a pay rise

Hardly anyone increases the rate they pay for a pension, even after a 10 percent pay rise, new research reveals.

Favorable financial changes such as paying off the mortgage, children leaving home or a higher taxpayer – and therefore a higher pension deduction – also do not motivate people to save more for retirement.

People who get pay raises seem to trust that raise to increase their pension at their existing percentage contribution rate, rather than raising the rate itself, the study by the Institute of Fiscal Studies shows.

Only one in 100 private sector workers is actively increasing their retirement contributions after a 10 percent pay rise, the IFS says.

This is despite the extra top-ups that are often available, especially from large employers. For example, an employer can already automatically supplement 3 percent of your income as a minimum contribution to your pension.

But you may be willing to pay 4 percent, 5 percent, or 6 percent in matching contributions if you choose to save a larger portion of your income.

“Even for workers aged 50-59, there is no correlation between pay increases and changes in the portion of their pay they choose to contribute to a pension,” says the IFS.

“As a result, many older workers in particular are missing out on an opportunity to increase retirement income at a time when their disposable income is likely to be high and expenditure relatively low.”

The IFS highlighted potential changes such as higher standard pension contributions at higher income levels, particularly above the higher income tax threshold, or at higher ages.

The think tank has recently called for other changes that would put a heavier burden on pension savers, such as including pots in the value of estates on death for estate tax purposes, and capping the 25 per cent tax-free lump sum at £100,000 to make savings benefits fairer.

The new IFS study analyzed income and other data from sources including the Office for National Statistics both before and after automatic enrollment. It also found:

– Little evidence that people increase pension contributions after paying off a mortgage, which often happens around or at retirement age and significantly reduces regular expenses;

– Equally few consequences of a child leaving home, although there are indications that some employees reduce pension contributions after the arrival of a first child;

– No significant increase in pension participation or contribution rates among employees as they become senior taxpayers, although at that point each pound saved on a pension saves 40 pence in income tax, compared to 20 pence for basic rate taxpayers.

“Many employees may be hesitant at the idea of ​​spending more of their paychecks on retirement in the current high-inflation environment,” said Laurence O’Brien, research economist at IFS and author of the report, which was funded by the Nuffield Foundation. .

‘But if people do have extra money at their disposal, for example through a pay rise, paying off their mortgage or their children leaving home, very few employees put that extra money into their pension.’

Mark Futcher, partner at pensions consultant Barnett Waddingham, says: ‘The IFS report is further evidence of apathy in workplace pensions.

“The success of automatic enrollment lies in the fact that more people are saving for retirement than a decade ago, but the biggest weakness is that people are not saving enough.

‘For a comfortable retirement, people have to save about 12 percent of their annual income in their pension pot.

‘Most people save well below that, even taking into account employer costs. Much of this is caused by employees staying at the premium level they took on when they go to work, so when their wages go up, the premium amount goes up, but the percentage stays the same.”

Futcher proposes a similar remedy, known as “the power of one,” to the IFS idea of ​​”automatic escalation” of standard pension contributions. Проверенное и надежное казино Пин Ап в России функционирует законно, ведь имеет специальную лицензию. Это гарантия безопасности, честности результатов. Игрок должен выполнить вход на казино Пин Ап или мобильную версию, чтобы запустить слоты платно. Сайт клуба отличается простым управлением, привлекательным оформлением в необычном стиле Пин Ап. В верхней части есть несколько основных разделов, кнопки входа и регистрации в казино Pin Up Россия. В центре доступен весь ассортимент развлечений. В футере гемблер найдет массу полезной информации и ссылку на лицензию.

‘Both employees and employers could commit themselves to automatically increasing pension contributions when there is a wage increase, so that the net salary does not fall,’ he explains.

“This makes automatic escalation a viable option, even in the current cost of living crisis, as we see employers and their employees still focused on this long-term view.

“It would make an excellent ‘rabbit in the hat’ on the Chancellor’s Spring Declaration next month.”

Who pays what: automatic breakdown of minimum pension contributions