Are you ready for pension shock?

MILLIONS of workers in auto-enrolment company pensions will see their contributions triple from today, raising fears that many will opt out.

Employees could struggle financially with the increased deductions from their wages as living costs rise and incomes stagnate, experts say.

The minimum employee contribution is rising from 0.8 per cent to 2.4 per cent, or 3 per cent once tax relief is included.

Contributions will increase again next year to 4 per cent, or 5 per cent with tax relief, making it a five-fold increase in total.

Employees on the average salary of £27,000 will see their contributions rocket from £169 a year to £517 as of today, then £879 next year, finance specialists AJ Bell calculated.

Employers must also increase their minimum contribution from 1 to 2 per cent of a salary from today, then to 3 per cent in 2019.

This will make a total contribution from both parties of 8 per cent, massively boosting the nation’s retirement pots.

However, experts fear opt-out rates could surge as cash-strapped workers notice the increased impact on their pay packets.

Auto-enrolment has given more than nine million mostly lower-paid workers a company scheme for the first time, boosting retirement incomes and easing future pressure on the state.

Companies are legally obliged to enrol all employees aged between 22 and the state pension age, who earn more than £10,000 a year.

Employees must actively opt out if they do not want to be a member, although most have not done so.

Andrew Tully, pensions technical director at Retirement Advantage, said there is widespread concern that take-up will now fall.

He said: “Employees who are feeling the pinch with increased living costs may think their only option is to opt out. A workplace pension is the best place to save for your later years, and the Government recognises this, which is why contribution levels are set to increase.”

Mr Tully said that because employers also contribute and HM Revenue and Customs adds tax relief, workers who opt-out are effectively turning down free money.

He added: “People should see this as a pay rise – they are actually receiving more money which is being put into their pension.”

Elliott Silk, of wealth advisers Sanlam UK, urged workers to budget for the increase. He said: “Check the current value of your pension plan, as this will demonstrate how valuable auto-enrolment has been to you so far.”

Pensions minister Guy Opperman said: “One million employers have played a crucial role by complying with their automatic enrolment duties. This week, we mark the next stage in boosting the retirement incomes of workers across the nation.

“This will be an essential step in ensuring that current and future generations of the UK workforce can look ahead with confidence and know they will have the savings they need.”