UK pension auto-enrolment bands risk under-saving for high earners, analysis shows

A little-known rule in UK workplace pensions could leave higher earners saving less than their full salary under auto-enrolment, potentially costing them tens of thousands of pounds by the time they retire. New analysis from AJ Bell and Nest highlights how the system’s qualifying-earnings bands can mute contributions for those who earn more, raising the risk of retirement shortfalls for a segment of the workforce. The rule is simple in theory: workers aged 22 and over who earn at least £10,000 are auto-enrolled, with a minimum 8% of salary saved into a pension (5% from the employee and 3% from the employer). But the catch is that a large portion of each pay packet may fall outside the band used to calculate those contributions. The band currently runs from £6,240 to £50,270 in earnings, meaning a worker earning £100,000 could be saving the same 8% only on the portion of pay within that band, not on the full salary.

Ed Wood, a senior financial planner at Rathbones, notes that the qualifying earnings structure can lead higher earners to a retirement shortfall. He said the system’s design means people earning more may not be saving more into their pension than someone earning far less, simply because the contributions are calculated only on a slice of pay. This is not just a theoretical concern: the analysis outlines concrete gaps between full-salary contributions and what workers currently contribute under auto-enrolment.

The practical impact is illustrated by several scenarios reviewed by AJ Bell. For example, a 50-year-old with a £100,000 pension pot who earns £50,270 a year could expect that pot to reach about £349,890 by age 65 if they contribute 8% of their qualifying earnings. If that same person earned £60,000 and saved 8% of their full salary, their pot could climb to around £412,721 by 65—an extra £62,831. A higher-earning example shows even larger differentials: with an £80,000 salary, pot growth to £465,616 could be possible under full-salary contributions, while a £100,000 earner could reach about £518,511—roughly £168,621 more than the qualifying-earnings scenario would yield. The analysis assumes annual investment growth of 6% and wage growth of 3%.

Nest, the government-backed pension scheme, estimated in 2022 that only around four in ten employees work for a company that bases contributions on full salary rather than the qualifying bands. That means many savers may be missing out on additional employer contributions and the potential to accelerate their retirement savings without realizing it. The implication for households is clear: if the bands remain unchanged, higher earners could be unintentionally under-saving compared with what their full earnings would allow.

Industry experts suggest several steps savers can take to bolster their retirement outlook. First, check whether your workplace pension uses qualifying earnings or your full salary to determine contributions. If the bands are being used, increasing your own contributions—while balancing other expenses—is advised where possible. Some savers can also explore salary sacrifice arrangements, which can raise take-home pay relative to pension contributions, depending on employer policies. Laura Suter, director of personal finance at AJ Bell, cautions that auto-enrolment is a baseline, not a complete retirement strategy. “Auto-enrolment was designed as a minimum safety net, not the finish line,” she said, highlighting the importance of understanding both how much is being contributed and where it is coming from. Andrew King, a pensions technical specialist at Evelyn Partners, adds that the real value of the bands has eroded over time due to inflation, underscoring calls to review the thresholds.

For workers just starting their careers, the gap can be even more pronounced. AJ Bell’s analysis shows that someone earning £30,000 at age 25 could retire with around £486,122 by 65 if they contributed the minimum 8% of qualifying earnings, but up to £639,643—an extra £153,521—if contributions were based on their full salary and pay rose as projected. A £40,000 earner would see a similar delta, with retirement pots rising to roughly £852,858 under full-salary contributions versus £580,605 if limited to qualifying earnings. These examples underscore how the policy design can compound over decades, affecting long-term financial security.

The discussions around auto-enrolment thresholds are not new, but the current environment—where inflation erodes real value and wage growth remains uneven—has renewed attention on whether the bands should be updated and whether the minimum contribution rate should be raised beyond 8%. Some experts advocate moving toward a 12% total contribution rate to put more savers on a sustainable path toward a comfortable retirement. Nest’s own findings and AJ Bell’s projections suggest that deliberate policy updates, combined with proactive employee actions such as higher voluntary contributions and employer matching, could materially improve retirement outcomes for many workers.

In the meantime, savers are urged to review their pension arrangements, confirm how contributions are calculated, and consider incremental increases to their own contribution rates. While the qualifying-earnings bands are a feature of the system, individuals can still influence their retirement trajectory by understanding the mechanics and taking steps to boost their savings where affordable. As the pension landscape evolves, households that actively manage their savings stand to benefit from better long-term outcomes, even in the face of policy nuances that may otherwise obscure the path to retirement security.