Workers who earn £25,000 to £50,000 could get £250,000 pension pot for free

Average earners could build pension pots worth nearly £250,000 without contributing any of their own money thanks to a shake-up.
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People could get an eye-watering £250,000 pension pot for free thanks to a proposed saving rule. Average earners could build pension pots worth nearly £250,000 without contributing any of their own money thanks to a shake-up.

The Institute for Fiscal Studies (IFS) has urged the new Labour Party government to make changes and says employers up and down the UK should continue contributing to workplace pensions even if employees choose to opt-out.

Under current rules, employers must automatically contribute, at minimum, the equivalent of 3 per cent of most employees’ earnings into a pension. Their employees must pay in minimum of 5 per cent. The IFS has suggested this could be changed, so that employers must continue paying in the 3 per cent even if the employee stops their own payments.

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Calculations show that by the age of 67, an average earner could amass a pension pot of nearly £250,000 through 3 per cent contributions alone, if these started when they were 22. Quilter suggests that if an employee were to opt out of their pension for their entire working life – from 22 to 67 – but had their employer pay in 3 per cent of their salary for that entire time.

A lower earner on £22,500 could get £159,200, a middle earner on £35,000 a whopping £247,000 and higher earner on £50k an astonishing £355,688. “Those who believe they can rely solely on 3 per cent contributions would face a stark reality in retirement, as our calculations show that not even someone earning £50,270 a year with 3 per cent contributions to their pension pot and a salary that increases by 3 per cent each year from age 22 will achieve a pension pot that provides them with a moderate lifestyle in retirement, according to the PLSA standards,” said Jon Greer, head of retirement policy at Quilter.