Almost half of DC savers don’t know they get tax relief on their workplace pensions

• A concerning proportion of Defined Contribution pension savers don’t understand two crucial components of workplace pensions:  tax relief and contribution levels.

• Almost one in two (46%) savers are not aware they receive tax relief on their contributions. 

• More than six in 10 people (62%) are not making use of higher employer contributions eligible to them.

A workplace pension is an important way to save for retirement, but almost a half of Defined Contribution (DC) savers don’t understand one of the key benefits they bring, according to new research from TPT Retirement Solutions, one of the leading workplace pension master trust schemes in the UK, serving over 2,600 organisations and more than 425,000 members.

The research, which polled around 1,500 DC savers, shows that 46% of people are not aware they receive tax relief on their contributions, essentially money from the government that you can claim when saving into your pension.

Another big issue is a lack of understanding of how workplace contribution levels work. This is striking, as tax relief and contribution levels should be the two key reasons why people save into their workplace pensions.

Almost one in five DC savers (24%) are unaware that they can change their contribution levels. Meanwhile, almost two-thirds (62%) of DC savers who are eligible for a higher employer contribution once they opt in are only receiving the minimum amount. A further 9% are unaware that their employer is contributing to their pension.

The findings suggest a need to further engage people on how DC pensions work, and on how to get the most out of your workplace pension. One DC saver in the survey summarises the problem well: “I just feel completely overwhelmed by my pensions - and don’t feel that I can educate myself well enough on my own.”

In response, TPT has recently introduced a series of live pension planning and financial wellbeing webinars, as well as a range of supporting material to help employers engage their employees in their workplace pension. Over 1,500 members have now attended a webinar - two thirds said the events prompted them to take action with their pension savings. These actions include increasing contributions, consolidating their different pension pots, exploring getting professional financial advice, and using TPTs tools to work out the level of expected retirement income their pension might provide.

TPT is also planning to launch a new defined contribution product that aims to make the transition from accumulation to decumulation easier for members. It will provide a whole-of-life fund that moves into drawdown at retirement, flipping assets to income production. The new offering will be aligned with Pensions and Lifetime Savings Association best-practice, to ensure members fully understand their retirement options. To support the new offering, TPT is putting all tools members will need into a digital solution that will make retirement options clear and easy to understand.

Philip Smith, DC Director at TPT Retirement Solutions, comments:

"DC pensions put responsibility for a member’s financial future firmly in their own hands. Helping people understand how workplace pensions work is therefore essential. If we want savers to take an active role in their retirement planning, it’s imperative that employers and all trustees provide them with the right information, tools, and support to enable them to make informed decisions.

Over the last few years, improving member understanding of their DC pension has been one of our top priorities. We’ve introduced an extensive suite of support, initiatives, and educational tools, including an educational site for DC savers, personalised video annual benefit statements, a comprehensive new-joiner engagement programme, new pension savings tools and a series of live educational pension planning webinars. We’re now finalising our plans for the next phase of development, including significant investment in improving our digital experience and developing retirement solutions that better support members and make retirement simpler when they’re ready to start accessing their pension savings."

Notes to Editors: Research based on a survey of more than 1,500 members who are currently contributing to a DC pension with TPT, and in-depth telephone interviews. It was conducted by TPT’s independent research partner, Gusto Research and completed in February 2023.