News & Articles

Pension Awareness 2023: Helping employees figure out their real financial future

September 6, 2023

Looking at the headline figures, the story of workplace pension saving is one of great success, with many more people saving for their retirement today than was the case just a few years ago.

Since the introduction of auto-enrolment in 2012, participation in workplace pension saving among eligible employees in the private sector has increased in every region of Great Britain, and total annual contributions have increased from £81.7 billion to £114.6 billion.

As the Pension Awareness campaign gears up for five days of live shows on all manner of pension-related topics between 11th and 15th of September, it can reflect on a decade of contributing to “improving the financial lives of millions of people”.

And yet, looking across all the health indicators for the workplace pension market, there are signs that not all is necessarily as well as it might seem on the surface. While the numbers of people saving for retirement has been on an upward trajectory, there are concerns over the amount going into pension pots. This has been blamed on various factors, including a lack of understanding about the fundamentals of pension saving, poor levels of engagement, and the failure put plans in place that accommodate the realities of a changing economy. Here, we look at some of those concerns in more detail.

A question of understanding

One of the core advantages of a pension is that individuals receive tax relief on their contributions from the government, making it a highly efficient form of saving. However, research has suggested that as many as 46% of employees are not even aware this benefit exists.

Furthermore, almost a quarter (24%) of workers do not realise they can make changes to contribution levels and, surprisingly, almost one in ten (9%) have no knowledge of the fact that their employer is even paying into their pension at all.

Low-level engagement

Almost two decades ago, the Pensions Commission proposed that workers put around 15% of their earnings towards their pension. Today, it is thought that nearly 90% of middle-earning private sector employees are saving less than this amount, with an estimated 60% saving less than 8%.

While some of the savers caught among these statistics might have poor understanding around pensions, others are failing to engage through a lack of confidence, Indeed, an estimated 6.3 million people are not confident in their retirement planning abilities, with some feeling overwhelmed, and potentially paralysed into inaction, by the many choices available.

Need for detailed planning

While engagement remains a persistent challenge, there are plenty of individuals who are getting to grips with their pensions and evaluating how much they might require in retirement. Research suggests, however, that they are in the minority, with only around a quarter (27%) of workers under the age of 35 having calculated how much they need to save into their pension.

Furthermore, these plans are not always as robust as they could be. Younger savers are more likely to be more optimistic when it comes to predictions about their future financial situation compared to those with more life experience. Individuals aged 35 and under not only expect to retire sooner, but they also believe they will require a lower level of income when they do.

A recent study funded by the Pensions and Lifetime Savings Association also underlined the importance of making forecasts with inflation in mind, pointing to the fact that the cost-of-living crisis has precipitated jumps in the minimum levels of annual income required in retirement.

Funding a comfortable future

The government is planning reforms to auto-enrolment legislation in order to help address some of these issues and support savers in building up a healthy pension pot over their working life. These plans include lowering the minimum age for inclusion from 22 to 18 and removing the lower earnings limit, which currently requires a worker to earn £6,240 per year before they qualify.

Ultimately, however, employees remain in control of their own choices when it comes to pension saving and, particularly in the context of a cost-of-living crisis, it is understandable that more immediate financial demands might overshadow the need to save for later years, with debts, bills and short-term goals all vying for prioritisation.

This only underlines the important role that employers can play in educating, engaging and supporting their staff in relation to workplace pensions. Funding the level of comfort that you want or need in retirement depends on the accumulation of adequate savings over your lifetime, and pensions provide an effective long-term platform to achieve that goal.

It’s only by having a clear understanding of how the system works and a solid grasp on the figures involved, however, that employees can be confident their retirement savings plan truly adds up.