UK households with an income less than £69,000 are being urged to increase their pension contributions or risk missing out on the retirement they hope for.
Research from the Pensions and Lifetimes Savings Association (PLSA) has found that while almost half (48%) of people understand how to change their pension contributions with their employer, around 50% have never actually done it.
The research revealed stark differences in pension engagement depending on age and gender, but found the biggest gap was related to income.
The PLSA found that higher earners – those with a household income above £69,000 – are far more likely (41%) to increase their contributions than those below this earnings threshold (16%).
While all workers – no matter their income – will benefit from boosting their contributions, the research shows that earners below £69,000 need to make pension savings a more immediate priority to benefit in retirement.
Zoe Alexander, Director Policy & Advocacy at PLSA, said: “This research underscores the gap between knowledge and action when it comes to pensions. People understand the need to save more, they know how to do it, they even want to do it, but for many, it simply doesn’t happen.
“Pensions can feel like a distant concern, but that attitude is leading to poor outcomes down the line. Those with defined contribution pensions are more likely to need to take positive action themselves to secure the retirement they expect, as the default 8% savings rate may fall short. Small actions, like reviewing investments, slightly increasing contributions, or maximising employer matching, can significantly impact long-term outcomes.
“However, employers and policymakers need to consider clearer guidance and behavioural nudges to help people act sooner rather than later. The process needs to be as simple and straightforward as possible, and we need to help people make their pension savings a more immediate priority, especially if they have the ability to save more. Without addressing this disconnect, many people will continue to miss out on the retirement they hope for.”
The Pensions Act 2008 states that every UK employer must put certain staff into a workplace pension scheme and contribute towards it in a process called ‘automatic enrolment’.
Employers that have at least one member of staff have certain legal duties and must pay at least 3% of their employee’s ‘qualifying earnings’ into their staff’s pension scheme. Under most schemes this is normally earnings between £6,240 and £50,270 a year before tax. Total earnings include:
Employers must then deduct contributions from their staff’s pay each month to put into their pension pot.
Most employers will allow staff to increase their contributions above the minimum 3% and may offer the option to ‘match’ the extra money staff put in up to a certain limit, meaning you can easily benefit from a bigger boost to your savings.
Employees are advised to speak to their HR department or pension provider to see what extra contributions are available.
