17-07-2025
Retirement expert issues warning to people paying basic rate of income tax
Workplace pensions will form the backbone of income for workers in retirement.
Income tax rises for Scots in April - how the changes affect you
A finance expert is warning that basic rate taxpayers are being left in the dark on their pension contributions. A survey of 1,000 people by Opinium for Hargreaves Lansdown, suggests that one in four (24%) people don't know how much they and their employer are paying into their workplace pension.
The research also found that people were most likely to say they contribute somewhere between £101-200 per month (17%). Basic rate taxpayers (24%) are significantly more likely to have no idea how much money is being paid into their pension, compared to 12 per cent of higher rate and 2 per cent of top rate taxpayers.
However, 57 per cent of basic rate taxpayers said they were contributing between £1-£300 from their monthly salary towards their retirement savings.
Clare Stinton, head of workplace saving analysis at Hargreaves Lansdown, said: 'Auto-enrolment has got millions more people saving for retirement, but many are doing so blindly - one in four don't know how much they and their employer are paying into their pension. If you don't know what's going in, then how can you possibly know what you'll get out - and crucially, whether it'll be enough to retire on your terms?'
'Basic rate taxpayers are far more likely to be in the dark than higher earners. Yet even one in 10 of those in the 40 per cent tax bracket don't know what they're contributing. For higher earners this lack of awareness could be costly for those who need to actively claim any extra tax relief from HMRC on pension contributions. Failing to do so could mean leaving thousands of pounds on the table unclaimed.
'With fiscal drag pushing more people into higher tax bands, pensions are an increasingly powerful way to reduce your total taxable income and keep more of what you earn. It's no surprise then, that both awareness and contribution levels rise with income. The tax perks of pensions typically get more generous as you climb the income ladder, with tax relief available at your highest marginal rate.'
Ms Stinton continued: 'Let's not forget employer contributions either, if you don't know what's going in, then chances are you don't know what's on offer either. Over half of basic rate taxpayers are contributing less than £300 a month, and for many the rising cost of living may mean that there is little room to stretch further. But it's worth checking if your employer offers salary sacrifice, if they do, you'll save both the income tax and National Insurance on what you pay in.
'For basic rate taxpayers that's a 28 per cent tax saving, meaning every £100 into your pension could cost you as little as £72. Some employers will even boost their contribution, if you increase yours. This is known as an employer match and can really increase the amount going into your pension.'
The finance expert said the the crucial question we all need to ask ourselves is 'am I paying enough into my pension to live the life I want later on?'
She explained: 'There's no one-size -fits-all answer, but the earlier you run the numbers, the greater chance you have to adjust your course. If you can afford to pay in a little more, every pound you pay in now could be the difference between scraping by in retirement or enjoying weekends away and dinners out.
'A pension calculator will do the heavy lifting, just plug in your details, and it'll project what your pot might be worth at your preferred retirement age. These tools can also model the impact of a small increase in contributions. Remember pay can change so it's important to review from time to time and make sure you're still on track.'
