The government is to save around £840m by delaying planned rises to pension contributions for millions of workers.

The chancellor George Osbourne announced on Wednesday that the next two scheduled increases to minimum pension contributions for auto-enrolled workers would be pushed back, which means savings on pensions tax relief.

The minimum contribution rate was scheduled to rise to 5% in October 2017 and then 8% in October 2018.

However, the chancellor said this timetable would be pushed back by six months to 'simplify the administration of automatic enrolment for small employers' as they prepare for auto-enrolment.

The Treasury said: 'The next two phases of minimum contribution rate increases will be aligned to the tax years - instead of increases taking place in October, they will now occur in April of the following year.'

NOW Pensions, the workplace pension provider, estimated the delay will mean a workers on average earnings could miss out on hundreds of pounds of pension savings.

'On face value, a delay of six months on each rate rise seems inconsequential,' said Morten Nilsson, chief executive of NOW.

'But, for an average earner, they could miss out on GBP 770 of pension savings and moving the goalposts causes unwanted and unnecessary confusion for employers.'

Nilsson recommended the government should look to increase contribution rates as an alternative because minimum contributions 'won't be enough for a comfortable retirement.'

The Pensions and Lifetime Savings Association said this is the second delay, following on from the amendment to staging and phasing in late 2011.

Joanne Segars, Pensions and Lifetime Savings Association chief executive, said: 'The government has to ensure that automatic enrolment proceeds as originally planned.'

'There should be no further change to either the staging or the phasing timetables so that the right workers are included and they can begin to build up the pensions they deserve and will need.'

Since 2012, more than 5.4m workers have been automatically enrolled into a workplace pension scheme, with employers and employees expected to make a combined minimum total pension contribution of 2 per cent.

David Brooks, technical director at pensions advisor Broadstone, said employers still need to engage with members to advise them of the change.

He said: 'This is a quiet Autumn statement with good news for some employers that would prefer to pay the absolute minimum contributions for their employees with the delay to auto-escalation rules.

'However, many employers will still need to engage with members to advise them of the change, if they have already confirmed the auto-escalation will happen.'

First published 26.11.2015

Lindsay.sharman@wilmingtonplc.com