Millions of workers slapped with £1,800 pension contribution warning

New research by Hargreaves Lansdown found one in five adults are not aware of how much money is going into their pension. People were most likely to say somewhere between £201 and £300 was contributed to their pension every month (15%) whilst 3% said it was more than £2,000 per month - a staggering £1,800 difference.

Meanwhile 18% of basic rate taxpayers had no idea. This compares to just 7% of those paying at the higher rate. Helen Morrissey, Head of Retirement Analysis at Hargreaves Lansdown said “Planning for retirement is one of the most important things you can do and yet one in five people have no idea how much they are contributing to their pension.

"It actually gets worse the older we get with one-third of people aged over 55 having no clue about what they and their employer are putting in. If you don’t know what’s going in then you won’t know what you are going to get out of your pension and so we risk people sleepwalking into retirement with nowhere near enough to meet their needs.

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“Having an idea of what you want your retirement to look like can help you get a sense of how much you need to get there. Recent data from HL’s Savings and Resilience Barometer puts the cost of a moderate retirement income at £25,000 per year for a single person. You can use online calculators to check if you are on track with your savings and if you aren’t you can model the impact of putting extra money in.

“It’s also worth saying that if you have no idea about how much is going in then you won’t be aware of the contribution that either the government or your employer is making to your retirement. You will receive a government top up in the form of pension tax relief on your pension contributions meaning that every £100 a basic rate taxpayer pays into their pension only costs them £80. For higher rate taxpayers it’s an even better deal as the same contribution only costs them £60.

“The employer contribution can also be significant. Under auto-enrolment employers have to pay a minimum of 3% into employee pensions. Some will pay more. Over time this can make a significant impact on what you end up with. Some will even pay in more if you hike your own contribution – the so-called employer match and this can have a huge effect on your retirement if you are able to afford the extra contributions.

“It’s also well worth checking to see if your employer offers a salary sacrifice arrangement on their pension. This is where you sacrifice a portion of your salary in exchange for benefits such as pension contributions. As your salary is lower, then so will your income tax and National Insurance contributions, so you are able to maintain pension contributions with higher take home pay. The employer also saves on their National Insurance contribution – this is something employers may increasingly look at as the rate they pay was hiked in the recent Budget and will hit 15% in April.”