Survey Reveals: Majority of British Workers Lack Understanding of Tax, NI, and Pensions, and it Could be Costing People in London over £14m Annually.
Pensions auto enrolment was introduced across the UK 11 years ago. But how well does the British public understand the rules around auto enrolment and the tax and National Insurance implications of their pensions?
Employee benefits software provider Zest surveyed 1,003 Brits and found that a lack of understanding in this area may be costing UK workers over £112m annually.
By applying this finding to the latest census data for London, Zest estimates that workers in London are potentially missing out on tax and National Insurance savings of over £14m each year (combined across all London Boroughs) simply because they’re not aware of the financial benefits of paying a bonus into their workplace pension.
- Only 2.3% of UK workers knew the minimum workplace pension contribution.
- A quarter of British employees knew how a bonus would be treated for tax and National Insurance if it were paid into a workplace pension.
- A lack of financial understanding about paying bonuses into a workplace pension may be costing the British public over £112m in tax and National Insurance savings each year.
- UK workers were more likely to spend a bonus on a holiday or buy new phones, computers, clothes or entertainment than put it into a pension.
A recent survey conducted by employee benefits technology company Zest, has uncovered a concerning lack of understanding among the majority of British workers when it comes to tax, National Insurance (NI), and pensions. The survey, which involved 1,003 participants, aimed to assess the knowledge of Brits regarding these financial matters.
The findings of the survey highlight a significant knowledge gap among the British public, which is potentially causing them to miss out on tax and NI savings of over £112m each year.
One surprising finding from the survey is that very few people were able to correctly answer what the minimum workplace pension contribution is from their qualifying earnings with only 2.3% of respondents answering the questions correctly. Across the UK, the average (mean) guess as to how much the minimum pension contribution is in the UK was 24.8% and the median response was 18%. In reality, the minimum pension contribution is only 8%. This indicates a significant overestimation of the required contribution.
Furthermore, when asked about who makes workplace pension contributions beyond the 3% provided by the employer, less than half of people (44%) correctly answered “the employee”, with 31% of people thinking the government made up the difference.
The survey also explored how well people understood the tax and National Insurance benefits of their employee pension contributions. Only around one-third (37%) of respondents correctly identified that the rate of tax relief on employee pension contributions is the marginal rate of tax the employee pays.
In addition, when asked about the treatment of a £2,000 bonus for tax and National Insurance purposes, only around one-quarter (27%) of respondents knew that they don’t have to pay income tax or National Insurance on the amount if it is put into their workplace pension.
Finally, Zest’s survey asked what employees would do if they received an unexpected £2,000 bonus at work. Only 6.38% of people said they would likely pay it into their pension, while 11.5% of respondents said they would likely book a holiday, or the 6.77% of people who would either buy a new phone or computer, clothes or spend it on going out and entertainment.
However, when filtering based on their previous answers, the survey found that for people who were able to correctly answer three questions about pension contributions, tax relief and National Insurance, the proportion of people who would pay an unexpected bonus into their workplace pension rose by 63% to 10.2% of respondents, compared to just 6.2% of people who got one or more of those 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 percentages of people in each income tax band, Zest estimates that this proportion of employees in the UK is potentially missing out on over £112m in tax and National Insurance savings because of their lack of understanding of pensions, tax and National Insurance.
By applying this finding to the latest census data for London, Zest estimates that workers in London are potentially missing out on tax and National Insurance savings of £14m each year simply because they’re not aware of the financial benefits of paying a bonus into their workplace pension.
Further analysis of the survey data is available here.
Commenting on the survey’s findings, Matt Russell, CEO of Zest, says: “It is clear that there is a need for greater education and awareness among the British workforce regarding tax, NI, and pensions to help individuals to make informed decisions that positively impact their financial future.
“Not only are there tax and National Insurance savings available to individuals when making workplace pension contributions, but through salary sacrifice, organisations can reduce their Employer National Insurance contributions too.
“Although our survey is of a relatively small sample of the UK population, it suggests that with the right knowledge, individuals can make better long-term financial decisions and secure a more stable financial future. Beyond education, organisations can also help in this regard by providing access to easy-to-use employee benefits platforms such as Zest”
Zest is an employee benefits platform that offers flexible benefits services for a wide range of well-known businesses across the world, including Hargreaves Lansdown, Taylor Wimpey, ADP and Travis Perkins.