UK Pension Perceptions 2023 Survey Results

Eleven years after auto enrolment was introduced to the UK, employee benefits software provider Zest polled 1,003 UK adults, all currently employed, to find out how well they understood the rules around auto enrolment, and the tax and National Insurance benefits of paying into their workplace pension.

Of the more than 1,000 people surveyed across the UK, only 2.3% of people were able to correctly answer what their minimum pension contribution is, with the median response being 18%, when in fact the correct answer is less than half that amount (8%).

Similarly, only 4.9% of all respondents were correctly able to answer three questions about who makes pension contributions, what the tax relief is on employee pension contributions and how a bonus that’s paid into a workplace pension would be treated for tax and National Insurance. However, those people who were able to answer all three of these questions correctly were 65% more likely to say they’d pay a bonus into their pension than those people who answered one or more of those questions incorrectly (10.2% vs 6.18%).

This lack of understanding of the tax and National Insurance benefits of paying money into an employee pension is potentially costing the British public over £112m each year in missed tax and National Insurance savings. 

We asked: In the UK, what is the total minimum pension contributions from your qualifying earnings (assuming you’ve not opted out of your workplace pension)? 

Most people were not able to answer this question correctly. Across the UK:

• The average (mean) answer was 24.8%
• The median answer was 18%
• The most frequently given answer was 10% (provided by 46 respondents)
• The correct answer is 8% and only 2.3% of respondents (23 people) gave this answer.

We asked: In the UK, the minimum total contribution to a qualifying pension scheme is 8% of an employee’s qualifying earnings. If the employer contributes 3%, where does the rest come from?

There were three options for people to choose from and the options were displayed in a random order for each person. The options were:

• The Government
• The Employee 
• The Employer

The correct answer is “The employee” however, while there were only three options to choose from, less than half of respondents got this question correct. 

To find out, we asked the 1,003 people in our survey two questions. 

Firstly we asked: Employee pension contributions are eligible for tax relief from the Government. Excluding any upper or lower caps/limits, what rate is the tax relief? Respondents could pick from five possible answers: 10%, 20%, 40%, 45% and The marginal rate of tax the employee pays

Only around one-third of respondents (37%) answered this question correctly, that the tax relief on employee pension contributions is the marginal rate of tax the employee pays.

The second question we asked about tax and National Insurance for pensions was about a hypothetical scenario where we asked: An employee earning £50,000 per year receives a £2,000 bonus. They decide to put all of that bonus into their workplace pension. How is that treated for income tax and National Insurance?

There were four options for people to choose from and the options were displayed in a random order for each person. The options were:

• The £2,000 is taxed and National Insurance applied as normal, and the remaining amount is put into their pension
• Only income tax is applied to the £2,000, they do not have to pay National Insurance
• Only National Insurance is applied, they do not have to pay income tax on the £2,000
• They do not have to pay any income tax or National Insurance on the £2,000 that they have put into their workplace pension

Only around a quarter of people got this answer correct (they do not have to pay any income tax or National Insurance on the £2,000 that they have put into their workplace pension).

We asked: What would you do if you received an unexpected £2,000 bonus at work?

The options were displayed in a random order for each person and were:

• Put it into my pension
• Pay off debt/credit card
• Book a holiday
• Buy a new phone or computer
• Spend it on clothes
• Spend it on going out/entertainment
• Put it in my savings account
• Put it towards a new car
• Put it towards buying a property

As the below visualisation shows, there were sizeable differences in the answers given by respondents from each country within the UK, by gender and from different regions within England.

The most popular response across the UK was to put the bonus into their savings account with 40% of people giving that answer. 28.5% of people said they would pay off debt/credit cards and 11.5% of people said they would book a holiday. Only 6.38% of people said they would pay it into their pension. This compares to 6.77% of people who said they would either buy a new phone or computer, spend it on clothes or going out/entertainment. 

Respondents from Wales were most likely to say they’d put the bonus into their savings (50% of respondents), but were least likely to say they’d pay it into their pension (5% of respondents). They were also most likely to say they’d book a holiday with 15% of people giving that answer. 

Respondents from Northern Ireland were most likely to say they would put the bonus into their pension (10.5% of respondents), pay off debt/credit card (42% of respondents). They were the least likely respondents to say they would put the bonus into a savings account with 31.6% of people giving this answer. 

People from Scotland were most likely to say they would spend a bonus on clothes (3.7%), and least likely to say they’d put it towards buying a property (1.22%).

English respondents were the most likely to say they would spend the bonus on a new car, a new phone or computer, or going out/entertainment (3.9%, 3.2% and 2.1% respectively)

Men were 88% more likely than women to say they would put the bonus into their pension (8.85% of men vs 4.7% of women). Men were also more likely than women to say they would spend the money on clothes, going out/entertainment or buying a new phone or computer, but were less likely than women to report that they’d put the money towards a new car or buying a property. 

When analysing our data we found that there were two factors that significantly influenced whether someone said they would pay an unexpected £2,000 bonus into their employee pension.

The first factor was how well they understood pensions and the tax and National Insurance benefits of paying into them. 

When filtering for people who got the following three questions correct: 

• In the UK, the minimum total contribution to a qualifying pension scheme is 8% of an employee’s qualifying earnings. If the employer contributes 3%, where does the rest come from?
• Employee pension contributions are eligible for tax relief from the government. Excluding any upper or lower caps/limits, what rate is the tax relief?
• An employee earning £50,000 per year receives a £2,000 bonus. They decide to put all of that bonus into their workplace pension. How is that treated for income tax and National Insurance?

The proportion of people saying they would put the windfall into their pension increases to 10.2% from 6.2%, a 63% increase compared to respondents who got one or more of those tax and National Insurance related questions wrong.

This suggests that a significant number of British workers are not paying bonuses into their workplace pension, who otherwise would if they had a better understanding of the tax and National Insurance savings of doing so.

When allowing for the number of people in employment throughout the UK, the percentage of workers who receive a bonus, the average bonus amounts and the proportions of people in each income tax band, Zest estimates that this proportion of the UK workforce could be missing out on over £112m in potential tax and National Insurance savings because of their lack of understanding of pensions, tax and National Insurance. 

As a result of this finding, Zest has launched a free online quiz to help people better understand the rules around auto enrolment, employee pensions and the tax and National Insurance benefits they offer. The pension quiz can be accessed here. 

The second factor we found that influences people’s likelihood of paying a bonus into their workplace pension was whether their employer uses an employee benefits system to help employees manage their workplace benefits.

As part of our survey, we asked people If you wanted to change any of the employee benefits you receive from your employer, how would you do it? (Select the option that most closely matches). 

23% of people said they use an employee benefits system they can access to make changes. If people answered that they have access to an employee benefits platform to make changes to their benefits selections, they were 62% more likely to say they would pay an unexpected £2,000 bonus into their employee pension, 9.1% of people vs 5.6% of people who don’t have access to an employee benefits portal.

Notes

Zest conducted an online survey between 9 September and 2 October 2023. The survey was completed by 1,003 UK adults aged 18 years and over, and who are currently employed in the UK. The survey is unweighted, and as such is only a snapshot of some of the working-age population.

Calculations of tax and NI savings potentially being missed by British workers due to a lack of understanding about the benefits offered by paying bonuses into their workplace pension are detailed below:

• There are approximately 22.63m* people employed in the private sector in the UK
• From our research, 21,524,447 of these workers (95.1%) would get one or more of the questions about pensions, tax and National Insurance incorrect.
• Of these, 1.33m would pay a bonus into their pension anyway.
• But we could get that number up to 2.195m if we educated them about the income tax and National Insurance benefits of doing so, a difference of 865,196
• Of these, 50.8% will be paying the basic rate of tax, 7.7% will be paying the higher rate of tax, and 0.88% will be paying the additional rate of tax**
• 25.9% of private sector workers receive a bonus***
• The average bonus they receive will be £2,519***
• By multiplying the number people who might pay a bonus into their workplace pension if they had a better understanding of the rules surrounding it (865,196), with the national percentages of workers who fall into each income tax bracket, the percentage estimated to receive a bonus and the average bonus amount, we get the value of bonuses paid to this group of people in each income tax bracket. We can then apply the income tax and National Insurance rates to the bonus amounts. See below table.

• Based on these calculations, these 865,196 people will be paying £112,318,618 in income tax and National Insurance that they could avoid if they were paying their bonus straight into their employee pension.

Sources of third-party data referenced above and other notes

*https://researchbriefings.files.parliament.uk/documents/CBP-9366/CBP-9366.pdf and https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/publicsectorpersonnel#:~:text=There%20were%20an%20estimated%205.87,more%20than%20in%20June%202022. 

**https://ifs.org.uk/taxlab/taxlab-taxes-explained/income-tax-explained#:~:text=As%20shown%20in%20the%20charts,of%20adults%20pay%20income%20tax.

***https://www.peoplemanagement.co.uk/article/1808621/quarter-employees-received-bonus-year-women-likely-left-out-data-finds#:~:text=The%20Cendex%20analysis%20of%20data,25%20per%20cent%20this%20year.

• Income tax rates used are for England, Wales and Northern Ireland as at 6 October 2023
• In estimating the amount of tax and NI paid on bonus payments by each income tax bracket we assumed that each income tax bracket remains the same and has not allowed for bonus payments pushing an employee into a higher or additional rate of income tax
• It has been assumed that the average bonus amount is applied to all bonus recipients regardless of their earnings and subsequent income tax brackets