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There are more than 2 million pensioners living in poverty in the UK. Unfortunately, old-age poverty is a very real problem.
The auto-enrolment pension scheme was introduced in 2012 to help tackle this problem, and it has made a difference. However, despite more employees saving towards their future, many still run the risk of an uncomfortable retirement.
Part of this could be down to a simple lack of understanding. In the Drewberry™ 2022 Workplace Pension Survey, we found that 41% of respondents didn’t understand their workplace pension and 48% didn’t understand their pension’s tax relief benefits.
In our survey of 1,000 working adults, we found that 87% of employees are currently contributing into a workplace pension.
This is great news, but not really surprising since auto-enrolment made it a legal obligation for employers to enrol all eligible staff.
What is surprising is the general lack of understanding employees seem to have about workplace pensions.
28% of respondents disagreed when asked, ‘Do you feel you have a good understanding of your employers workplace pension provision?’
A large number of employees also don’t understand what pension tax relief or salary sacrifice is.
Tax relief is one of the major benefits of workplace pensions. If employees do not understand it, they could be missing out on the opportunity to boost their savings.
Alarmingly, employees also don’t know how much they are saving into their pension.
41% of respondents said they don’t know what percentage of their employed earnings they contribute each month.
Another 41% said they also don’t know how much their employer contributes each month.
It’s impossible for employees to know if they are saving enough for retirement if they don’t know what is being contributed or the tax relief they are entitled to.
With this in mind, it’s not surprising that when asked, ‘Do you feel you contribute enough to your workplace pension?’ 24% of respondents disagreed, and another 10% said they weren’t sure.
Antoine de Saint-Exupéry once said, ‘A goal without a plan is just a wish.’ This couldn’t be more true when it comes to retirement.
If employees don’t understand their workplace pensions or how much is being contributed, how can they plan for their retirement effectively? The answer is they can’t.
More needs to be done to educate staff to ensure that they have the right tools and knowledge to make informed decisions about their pensions.
Just increasing monthly contributions by 1% can have a significant effect on the health of someone’s pension pot. Not only because they will be saving more, but because their savings will be topped up with what is essentially ‘free money’ from the government.
In order to take advantage of this, employees need to understand workplace pensions and what their goals are for retirement.
If you need pension advice or want to discuss how to find the right group scheme for your employees, email help@drewberry.co.uk or call us today on 02074425880 and speak to one of our friendly specialist advisers.
Danielle Hines
Employee Benefits Consultant at Drewberry
