Over a quarter (26%) of UK workers do not know how much they contribute to their workplace pension each month, according to new research1 commissioned by Standard Life, part of Phoenix Group, highlighting the need to encourage further education and engagement with the auto-enrolment scheme as it reaches its 10th anniversary amid the spiralling cost of living.
While 74% say they do know how much they pay monthly into their workplace pension scheme as a percentage of their salary, certain demographics are less knowledgeable about their contributions. Over three-quarters (77%) of male workers know the amount they contribute, but this falls to just 71% among females. In a similar pattern, 81% of 18- 34 year olds know how much they pay in each month, whereas 71% of 35-54 year olds and 69% of over 55s say the same.
Those with lower incomes are also less aware of the amount that they pay into their workplace pension. Among those with an income of between £10,001 and £20,000 a year, only 55% say they know how much they pay on a monthly basis as a percentage of their salary. However, this rises to 75% among those with an income of between £20,001 and £30,000 a year.
Contribution levels
With October marking the ten-year anniversary of the introduction of auto-enrolment, Standard Life’s research finds there is still work to be done to ensure workers are informed enough to make the most of the scheme, if they are in a position to do so. For example, as many as one in five (19%) workers state they did not know they could increase their personal contributions.
However, almost three in ten (29%) UK workers do currently pay more than the minimum amount required into their workplace pension. Two in five (43%) pay in the minimum amount while 13% pay the amount their employer recommends.
Men are more likely to increase their contributions than women (33% vs. 25%), as are younger age groups, with 33% of 18-34 year olds regularly paying in more than the minimum, compared to 28% of 35 to 54 year olds and 22% of over 55s.
Jenny Holt, Managing Director for Customer Savings and Investments at Standard Life said: “Since it was introduced ten years ago, auto-enrolment has embedded a savings ethos in UK workplaces, and normalised pension saving. It has created a culture where close to 80% of workers are now automatically saving into a pension and putting money away for retirement each month, compared to just 47% back in 20122, and this is hugely positive.
“There is, however, still room for improvement, particularly in terms of improving knowledge and engagement levels across all demographics. Employers ensuring their communications around retirement savings are regular, targeted and relevant is a great way to boost engagement and supporting employees with wider financial wellbeing can have a knock-on effect on preparedness for retirement. With higher levels of engagement and understanding, more people can make informed decisions around how much they want to contribute and are fully aware of options they have. The Pensions and Lifetime Savings Association are running the UK’s first ever Pensions Engagement Season this autumn and winter, which includes a series of initiatives aimed at making pensions more accessible and understandable for savers. The campaign could be a great tool for employers to kick start their engagement strategies.”
Reasons why workers do and don’t top up contributions
Among those who have increased their contribution levels, 44% do so because they want to put as much as they can afford into their pension for their future. Almost a fifth (18%) want to benefit from compound interest, and 17% pay in more because they received a pay rise.
When it comes to those who knew they could increase their contribution levels above the auto-enrolment minimums but choose not to, 39% say this is because they can’t afford more than the minimum amount, 26% are putting their savings towards other investments instead, such as buying a house, and 19% need to use the extra money towards looking after their family. Meanwhile 15% prefer to use any extra money on enjoying themselves, and 12% say they have never got round to it.
Jenny Holt continues: “Households are currently facing huge financial pressures, and it’s understandable that many people are struggling to balance short and long-term financial priorities. However, if your finances permit and it’s appropriate for your circumstances, the sooner you engage with and begin to contribute to your pension, the better your ultimate retirement outcome will be. For those in a position to do so, such as when you receive a pay rise or bonus, then using that extra income to top up contributions can be beneficial in the long term as the impact of compound interest is much more significant and can result in a much larger retirement pot.”
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