Almost a quarter (24%) of basic rate taxpayers don’t know how much they and their employer are paying into their pension, new research from Hargreaves Lansdown has shown.
This compares to 12% of higher rate and 2% of top rate taxpayers.
People were most likely to say they contribute somewhere between £101-£200 per month (17%). However, 57% of basic rate taxpayers have between £1-£300 going in each month, while 30% of additional rate taxpayers have between £1,501-£2,000+ entering their pension each month.
Clare Stinton, head of workplace saving analysis at Hargreaves Lansdown, said: “If you don’t know what’s going in, how can you possibly know what you’ll get out, and crucially, whether it’ll be enough to retire on your terms?
“Basic rate taxpayers are far more likely to be in the dark than higher earners. Yet even one in 10 of those in the 40% tax bracket don’t know what they’re contributing. For higher earners this lack of awareness could be costly for those who need to actively claim any extra tax relief from HMRC on pension contributions. Failing to do so could mean leaving thousands of pounds on the table unclaimed.”
Stinton said a lack of awareness around employer contributions is also an issue, with employees unlikely to understand what’s available, including benefits such as salary sacrifice. For basic rate taxpayers, it can equate to a 28% tax saving, meaning every £100 into a pension could cost an employee just £72.
With fiscal drag pushing more people into higher tax bands, Stinton said pensions are proving an “increasingly powerful” way to reduce total taxable income.
“The crucial question we all need to ask ourselves is: am I paying enough into my pension to live the life I want later on? There’s no one-size-fits-all answer, but the earlier you run the numbers, the greater chance you have to adjust your course.
“A pension calculator will do the heavy lifting and project what your pot might be worth at your preferred retirement age. These tools can also model the impact of a small increase in contributions. Remember pay can change so it’s important to review from time to time and make sure you’re still on track,” she added.
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