The government should not introduce any sudden hikes to auto-enrolment contributions as this could make savers uncomfortable.
In a note published today investment manager Hargreaves Lansdown says auto-enrolment is entering an important stage as contributions rise next month.
In April contributions will step up from 5 to 8 per cent with experts waiting to see what the effect on opt out rates will be.
Hargreaves Lansdown has looked at the impact on people’s pay now and pensions in the future.
The new rules will mean the average employee pays £905 per year into a pension, but with contributions from tax relief and their employer, the amount added to their pension is £1,810.
The change could boost the pension pot of someone at retirement by half, around an extra £55,000 for someone on average earnings.
But Hargreaves Lansdown also warns lawmakers need to be careful as the average worker will see an extra £30 leave their pay packet in April to cover the cost of pension contributions.
It points out this is the amount the average household spends on eggs, milk, cheese and chocolate.
Hargreaves Lansdown senior analyst Nathan Long says: “Auto-enrolment has revolutionised retirement saving in the UK, with our pay packets absorbing all that’s been thrown at them so far.
“April’s contribution hike is yet another hurdle to clear before we can be confident we’re in better retirement health, with the average worker preparing for their spending power to drop £30 every month.
“Lower take home pay could put pressure on families, although these higher contributions have the potential to power up your pension by half, so persevering remains pertinent. The scheduled jump in the personal tax free allowance will also help offset some of this cost.”
He adds: “Only relying on inertia to provide for us in retirement is dangerous. Auto-enrolment is a little like a cheap balloon at a kid’s party. The more you inflate, the better it gets, but at some point it cannot take anymore.
“The focus now needs to switch to getting people to understand how paying in more personally or improving their investment returns may boost their income or allow early retirement, rather than forcing them to pay more in automatically.”