Assuming you are not paying anything into a pension just now then you are getting a 3% pay rise with the employers contribution, its just being ‘saved’ for you.
For the increase to 4% for the employees contribution, you will get 20% tax relief, so will effectevely be putting in 3.2%. That will be the reduction you see in take home pay.
So, for a reduction of 3.2% take home, you are putting 7% into savings, or for what costs you £100 take home you get £218 saved in your pension.
You wont get such a good savings deal anywhere else. Its only a bad thing if you dont expect to retire or are genuinely on the bread line.