Workplace Pension Savers in the Dark About Investments

More workers are saving into a pension than ever before – but many are unaware where their retirement pot is invested and put off by meddling pension policy makers

Karen Kwok 8 March, 2016 | 4:35PM
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With less than one month left of this tax year time is running out for ISA and pension investors – or anyone looking to boost their savings and reduce their HMRC bill. Read our Guide to ISAs, Pensions and Tax-efficient investing to make sure you don’t get left behind. 

 

 

More than six million workers in the UK have now automatically enrolled in workplace pension schemes since the process began in October 2012. More workers are saving into a pension than ever before – but many are unaware where their retirement pot is invested. Add to this the constantly changing goalposts and you can see why savers are confused  - especially in the run up to next week’s Budget to be announced on March 16.

What is the Current Pension System? What Will Be Changed? 

Over the past weeks, speculation has mounted about potentially radical changes in the pension system to be announced in the Budget by Chancellor George Osborne. One of the potential changes is the introduction of single-rate tax-relief.

Currently, basic-rate taxpayers who pay into a pension get 20% tax relief. Higher-rate taxpayers get 40%, and top-rate taxpayers get 45%. A single-rate tax-relief, no matter at what level Treasury sets, is likely to hit higher earners. However this might also encourage lower earners to save more for retirement.

A Change of Pension Saving Allowance

There are two types of pension saving allowances. First, a lifetime allowance, which is the amount of money an individual can save for his pension under tax-free shelter, throughout his lifetime. It is currently at £1.25 million this will be reduced to £1 million in April. 

The annual allowance allows an individual to save up to £40,000 a year into a pension without charge and benefitting from tax relief – some rumours suggest this will be lowered.

Savers Confused by Ever More Pension Changes

Against this shifting landscape, we took to the streets to talk to pension savers in London to find out their attitudes towards pension saving.

We found that most people had a workplace pension – thanks, we can safely surmise, to auto-enrolment. However, many of the pension savers were “asleep in the wheel” – one admitted as much; they were unaware of what they were invested in. These retirement savers trusted their pension scheme to provide a pension upon the members’ retirement.

Many of the pension savers admitted they were confused by the constant changes in pensions year to year. Certainly the changes create a lot of complexity.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk