HARD-PRESSED Scots lucky enough to get a pay rise next month are likely to see much of the uplift swallowed up by extra pension contributions, potentially sparking a big opt-out from automatic enrolment at work.

Currently, auto-enrolment requires a minimum contribution rate of two per cent, with one per cent coming from employers and one per cent coming from employees.

From April 6, the rate jumps to five per cent, with 3 per cent from employees, and in a year’s time it jumps to eight per cent, with five per cent from employees.

As part of the employees’ contribution comes from the Government by way of tax relief, workers on £20,000 will see the amount deducted from their pay rise from £113 to £346 this year and to £588 a year as of next April. For those on average earnings of £27,000, the rise is even sharper, from £169 to £517 a year as of next month then up to £879 from April 2019.

It means workers on modest earnings will see their monthly deduction more than treble from £14 to £43 in April, and then leap up to £73 in a year’s time.

The rise comes against a background of held-down pay - last year’s average wage rise was 2.5 per cent, according to the Office of Budget Responsibility. Jon Greer, head of retirement policy at Old Mutual Wealth, said: “This means many people are really being asked to ditch extra pounds in their pocket in favour of diverting money to a pension.

“Calculations show that once auto-enrolment increases are taken into account, someone earning £30,000 a year could expect a take-home pay increase of only 0.97 per cent, while an individual on £45,000 would get only 0.72 per cent.”

The industry is keen to stress the benefits of staying enrolled. According to Hargreaves Lansdown, a £30,000 earner may see an extra £64 a month disappearing from their pay packet as of next week but that could lead to an increase in their final retirement pot of around £34,000.

Similarly, Fidelity International calculated that a 33-year-old earning £35,000, whose salary rose by 3.75 per cent a year and whose pension savings grew at five per cent a year, would build a pot worth only £3,293 a year at age 68 on the current total contributions.

On the eight per cent contribution level after April 2019, however, the pot would grow to £12,826 a year.

But nine out of 10 firms admit that their employees were switched off from workplace pensions, according to a survey published this week by the CBI and pension firm Aegon.

What’s more, the research showed the groups most at risk of poverty in old age – younger workers and lower earners – are far less likely to understand their options than older workers and higher earners.

CBI managing director Neil Carberry said: “Many younger workers, those on lower incomes and employees who have been at a business for a short period are not getting the support they need to get to grips with issues that will help determine a successful path to when they retire.”

He said the majority of firms are seeing their workers divert money away from their pensions “due to other financial priorities”, adding that far more support was needed to help staff “manage saving alongside living costs and any debts they have”.

Young employees are particularly disconnected from their workplace pensions, according to a report earlier this month for Share Action, the responsible investing charity.

It highlighted the fact that auto-enrolment had been introduced during a period of wage stagnation, meaning there were “many competing pressures on people’s pay packets”, from rent bills to paying off student and consumer debt.

Share Action said: “For many workers, opting out of pensions may mean the difference between paying their bills and falling into debt.”

It warned that an old-fashioned and uninspiring pensions industry would feed young workers’ apathy about pensions and called for better financial education so employees understood their rights.

Pension experts, meanwhile, have called on employers to take more responsibility.

Paul Bucksey at Aegon Workplace Investing said: “Some employers are already going the extra mile to support their workforce in getting their pensions on the right track.

"But what remains clear is that whether you choose to hold roadshows, workshops or webinars, offer online financial planning tools or workplace financial advice, you need to do it regularly, as part of a wider financial awareness strategy.”