Britain’s long-time-coming automatic enrolment pensions reform kicked off in earnest this week.

Starting with the big end of town (120,000 employee firms in October and 50,000 to 119,999 employee businesses in November) commences the staggered introduction spanning five years of millions of UK workers being offered a workplace pension.

The semi-compulsory pension arrangement (workers can opt out if they so choose) will result in approximately five million workers staying in what is offered to them and beginning the long and arduous task of saving towards their retirement.

‘Better than nothing’ seems to be the general view in the market, as the jury is still out as to whether the minimum 8% contribution will actually be enough to make a notable difference to one’s retirement – at least in terms of adequacy.

For those who are enrolled and stay in initially, the contributions required will be 2% of the employee’s gross salary, of which at least 1% must be paid by the employer.

This will rise to a minimum 8% contribution, with the employer being responsible for at least 3%.

But, even once the minimum contribution is increased to 8%, calculations show that this will still be insufficient to support the average individual throughout their retirement.

For example, an employee with median gross earnings equal to £25,378 will see his gross income fall to £17,409 in retirement if he has contributed 8% of his earnings to a pension plan throughout his working life.

Similarly, a worker with earnings equal to 1.5 times the median income will see his gross income diminish from £38,067 to merely £22,574 upon retirement.

These numbers clearly illustrate that if employees rely solely on the minimum 8% contribution, they are bound to see a steep fall in their income upon retirement which will lead to a decrease in their quality of life and even see them slide into poverty.

While increasing their level of savings is a must, it is at least equally important that individuals’ investment strategy yields consistent returns over their working life as this can make the difference between an insufficient and a good income in retirement.

Assumptions made by Standard Life, the life and pensions company, and the National Employment Savings Trust (Nest), the government workplace pension scheme, clearly show this stark difference.

Standard Life claims that a 22-year-old man earning £8,105 would, at 67, have saved a tax-free lump sum of £21,500 and a weekly pension of £75. Nest, on the other hand, gave more subdued estimates – a £4,500 lump sum figure and £14 in a weekly pension.

The Standard Life calculations assume a growth rate of 7% per annum and annual charges of 1% which some may deem quite optimistic. However, it underlines the importance of continued investment throughout one’s working life, as well as the need for increased savings levels.