Press Releases

Half of working Brits unaware the UK government boosts pension contributions

Jul 18, 2017

• Quarter of Brits would increase pension savings if they knew the government topped up their pension
• Brits currently receive on average £135 per year in government tax relief
• Half of the UK does not know what Auto-enrolment is

LONDON, 10 July 2017 - Half of Brits are unaware that the government contributes to pension savings, outside of the state pension, with some missing out on tens of thousands of pounds in retirement. 

According to BlackRock’s flagship Investor Pulse survey, polling 4,000 people in the UK, around 16 million* people in the UK do not know that the government boosts their pension contributions in the form of tax relief. Brits currently contribute around two per cent of their annual salary (£27,000) into their pension, generating an extra £135 per year in contribution from the government through tax relief. If Brits were to increase their payments and save five per cent of their annual salary, they stand to gain £13,520 in pension’s tax relief over 40 years, amounting to £28 per month.

The survey also reveals that raising awareness of the tax relief the government provides to pension savers would entice Brits to put more away for their retirement. A quarter (27%) of people said they would increase their regular contribution if they knew the government topped it up. As Brits increase how much of their salary they put in their pension, the more money they stand to gain in pension’s tax relief from the government.
Using tax savings to help close the £317,000 gap
Brits say they would like an annual retirement income of £26,000 and believe a pension pot of £233,000 is enough. In reality they will need closer to £550,000 even after taking into account the State Pension**. Taking advantage of the additional cash from government tax relief through increasing their personal contribution to their pension, Brits can reduce this savings gap.

If Brits were to increase their monthly salary contribution towards their pension to 15 percent, in line with the Department of Work and Pensions’ recommendation, they would enjoy more than £1,000 a year from the government, amounting to over £40,000 over 40 years.

Individual contribution to workplace pension Annual salary contributed to their pension (based on average UK salary of £27,000 per annum) Government tax relief contribution (annually) Total contribution of government tax relief over 40 years

Individual contribution to workplace pension

Annual salary contributed to their pension (based on average UK salary of £27,000 per annum)

Government tax relief contribution (annually)

Total contribution of government tax relief over 40 years

2%

£540

£135

£5,400

5%

£1,350

£338

£13,520

10%

£2,700

£675

£27,000

15%

£4,050

£1,013

£40,520


Source: https://www.pru.co.uk/xpf_calculators/tax-relief-calculator/

Knowledge is power 

Reinforcing the need for a greater level of education, the survey also reveals people do not understand basic pension’s terminology. Despite recent campaigns to increase awareness, half (48%) of the working UK population do not understand what Auto-enrolment is and two in five (39 per cent) do not understand what a Defined Contribution pension is. Brits are also struggling to grapple with changes in pension’s legislation with almost half (45%) of those approaching retirement age not aware of Pension Freedoms.
Claire Finn, Head of UK DC Pensions at BlackRock, commented: “While it is surprising that half of Brits are not aware that the government already supplements their pension savings, our survey shows promise – people would contribute more if they knew the government was contributing too.

“With the cost of living going up, it can be hard to save for something that’s years away. However, every pound invested pre-retirement can have an exponential effect on what a person’s life looks like in retirement. The good news is that six in 10 people are already saving for retirement and could be boosting their pension even further. Increasing their personal contribution to 10 per cent of their monthly salary would see government tax relief rise to £27,000 over 40 years.

“Our survey shows education is paramount if we want Brits to be saving more, especially since we are all living longer and the responsibility of pension provision continues to shift from the state to the individual. There are a number of levers that can be pulled to help individuals achieve their retirement aspirations – top up your pension in line with inflation or salary increases, work a bit longer or reduce the amount you think you will need. Even if people cannot save right now, everyone should have a plan in place for the future. The sooner you can start saving for retirement the better.”

Other survey findings include:

· Moving the retirement savings needle: The number of people saving for retirement has plateaued in the last two years with four in 10 people saying they’re not saving for retirement.
· Of those currently not saving for retirement, two thirds do not have any pension provision in place. Half (48 per cent) are not saving for retirement because they do not have enough money, while one fifth have other priorities
· Technology is helping in the education process: The use of online tools for monitoring progress towards retirement is helping to change behaviour and has a significant effect on how confident people are about their retirement income. One in ten people say using an online tool has been most useful in helping monitor financial plans for retirement, while six in 10 people who have monitored their retirement plans online have done something as a result, with 24 per cent deciding to spend less and 17 per cent increasing their pension contributions.

ENDS
Notes to editors:
Investor Pulse Survey – BlackRock’s Global Investor Pulse Survey examines investing, attitudes and behaviours across the world. The 2017 survey included 28,000 respondents in 18 countries. The UK sample included 4,000 respondents between the ages of 25-74. Survey conducted in Q1 2017.
*Source: https://www.livepopulation.com
**Source: BlackRock

 

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