Almost one in five (19 percent) employees do not know how much they or their employer are paying into their pension, a survey has found.
This lack of awareness around pension contributions rises to 33 percent among people over 55, while 10 percent of people aged between 18-34 did not know what their combined contributions were, according to the survey with 1,100 people, conducted by Opinium on behalf of Hargreaves Lansdown.
Survey respondents were most likely to say contributions were somewhere between £201 and £300 every month, with 15 percent giving this answer, while 3 percent said it was more than £2,000 per month.
Almost a fifth (18 percent) of people paying basic rate tax had no idea, compared to just 7 percent of people paying at a higher tax rate.
‘Sleepwalking into retirement’
“Planning for retirement is one of the most important things you can do and yet one in five people have no idea how much they are contributing to their pension. It actually gets worse the older we get with one-third of people aged over 55 having no clue about what they and their employer are putting in,” said Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.
“If you don’t know what’s going in then you won’t know what you are going to get out of your pension and so we risk people sleepwalking into retirement with nowhere near enough to meet their needs.”
She said that having an idea of what you want your retirement to look like can help you get a sense of how much you need to save to get there.
Recent data from HL’s savings and resilience barometer puts the cost of a moderate retirement income at £25,000 a year for a single person. Morrissey said there are online calculators available where people can check whether they are on track with their savings. People who find they are falling short can model the impact of putting extra money in, she added.
“It’s also worth saying that if you have no idea about how much is going in then you won’t be aware of the contribution that either the government or your employer is making to your retirement. You will receive a government top up in the form of pension tax relief on your pension contributions meaning that every £100 a basic rate taxpayer pays into their pension only costs them £80. For higher rate taxpayers it’s an even better deal as the same contribution only costs them £60.”
Engaging employees in pensions
The value of employer contributions to pensions cannot be overstated. Under auto-enrolment rules, employers must contribute a minimum of 3 percent to their employees’ pensions, though many choose to pay more. Employers offering this and employer contribution match schemes (where employers match the contributions if employees increase their contribution) can leverage these benefits for greater talent attraction and retention.
Salary sacrifice arrangements for pensions are another way to boost your savings, Morrissey said. Employees can agree to exchange part of their salary for increased pension contributions. This reduces the employees income tax and national insurance liabilities as well as lowering the employer’s NI.
Given the recent NI hike in the budget, meaning employer NI on employee earnings will rise to 15 percent from April 2025, “this is something employers may increasingly look at”, she added.
