Savers could be missing out on as much as £90,000, as a result of the way pensions contributions are calculated, according to NOW: Pensions - a subsidiary of ATP, one of Europe's largest pension schemes.

NOW: Pensions says qualifying earnings, the band of earnings used to calculate contributions, has a corrosive effect on pension pots and misleads savers.

Morten Nilsson, chief executive officer of NOW: Pensions said: "The 8% contribution rate is regularly quoted but the reality is nobody actually gets a full 8% – the most anyone gets is 6.9% if they are exactly at the top of the earnings band, with somebody earning GBP 10,000 only receiving a total contribution of 3.4% which is woefully inadequate."

He went on to say that for the 2014/15 tax year qualifying earnings has been set by the DWP between GBP 5,772 and GBP 41,865 a year, which means that the first GBP 5,772 of an employee's earnings isn't included in the auto enrolment calculation.

"This means for example, if a worker earns GBP 20,000 their qualifying earnings would be GBP 14,228. The maximum amount contributions can be based on is GBP 36,093 (GBP 41,865 minus GBP 5,772) for the 2014/15 tax year," he said.

"For somebody earning GBP 27,000 a year, over 40 years of saving, basing auto enrolment contributions on qualifying earnings rather than total salary could mean that they miss out on as much as GBP 90,549 of contributions and investment growth."

NOW: Pensions is today calling for the removal of qualifying earnings and for pension contributions under auto-enrolment to be based on total salary.

"Removing band earnings and basing contributions on all salary would help boost savings for all and would remove a great deal of the administrative complexity for employers," said Morten Nilsson.

NOW: Pensions has 50 years of experience from ATP in auto-enrolling employees into cost-effective pensions.

With an established history of providing stable returns to all Danish pension savers, the company intends to bring cost-efficiency to the UK pensions industry.

First published 27.11.2014

Lindsay.sharman@wilmington.co.uk