-Over three in four (77%) people aged 18 to 65 who are not actively saving into a pension were unaware that for every £4 they invest the government contributes another £1[1]
-But 35% of them say they would invest an average of £159.60 each month in such a long term saving product if it actually existed
-Better understanding could encourage a staggering £20.6bn[2] of savings for retirement
Over a third (35%) of people in the UK aged 18 to 65 who aren't actively investing in a pension say that they would be likely to invest an average of £159.60 each month into a long term savings product that ‘added an extra £1 to every £4 invested' if such a product existed. But according to Standard Life's ‘Financial Efficiency' research, over three in four (77%) people aged 18 to 65 who aren't currently investing in a pension are totally unaware that this benefit is already available from a pension [3].
If over a third of people who are not actively investing into a private pension did start to invest an average £159.60 a month, their total pension investment would increase to £199.50 a month when basic rate tax is added[4]. If this was invested from age 30 into a pension, it could result in a sizeable pension pot of £144,635 in today's money by age 67[5]. This could help to close the savings gap and tackle concerns about long term financial security.
According to the Pensions Policy Institute, 61.5% of people in the UK do not invest in a private pension, which equates to over 24 million people in the UK. If over a third of them started to invest £159.60 a month, this could add up to over 8.6 million more people saving an additional £20.6bn in total towards retirement each year, assuming they are basic rate tax payers.
Commenting on the findings, John Lawson, Head of Pensions Policy at Standard Life, said:
"I don't think we should be too surprised to learn that many of those people who aren't actively investing for their retirement are still unaware of the tax benefits of a pension. Clearly there is still a job to be done, to help educate people on the benefits of tax efficient products like pensions and ISAs so they can make the most of them.
"But it's very reassuring to know that those who aren't actively investing in a pension at present would think again if they understood just how tax efficient a pension can be. It shows that the tax relief on pensions is an important incentive and can help encourage those who aren't investing for their later years to take control of their future finances."
These findings are in line with the Keep on Nudging Report Standard Life published last year, which looked at how to make auto-enrolment a success and showed just how important education and communication can be. The report found that four in five people would remain members of an auto-enrolment pension scheme, but only if information and education on the benefits of pensions were presented in a clear and effective manner.
Lawson adds:
"Communicating the tax benefits of pensions in a clear way is vital. We have a huge opportunity here. If a third of us without a private pension actually start to invest each month it would be a really positive result. In fact, even if only half that number understood the tax benefits of pensions better and started to save for their retirement it would be a really good outcome. Not many people will be able to survive on the state pension, so planning our own finances for retirement is crucial in this day and age."
To help people to understand more about tax efficient investment in products such as pensions and equity ISAs, people can visit www.yourfuturemoney.co.uk which includes free guidance, tips, tools and also an independent risk questionnaire to help people understand their risk profile.
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