Half of the UK working population, around 16 million people, are unaware that the government boosts pensions saving with tax relief, according to BlackRock’s flagship investor pulse survey.
The poll of 4,000 people in the UK also reveals that raising awareness of the tax relief the government provides to pension savers would entice them to put more away for their retirement.
A quarter (27 per cent) of people said they would increase their regular contribution if they knew the government topped it up.
Workers currently pay around two per cent of their annual salary (£27,000) into their pension through auto-enrolment, generating an extra £135 per year in contribution from the government through tax relief.
If they were to increase their payments and save five per cent of their annual salary, they stand to gain £13,520 in pension tax relief over 40 years, amounting to £28 per month.
If they were to increase their monthly salary contribution towards their pension to 15 per cent they would enjoy more than £1,000 a year from the government, amounting to over £40,000 over 40 years.
Reinforcing the need for a greater level of education, the survey also reveals people do not understand basic pension’s terminology.
Despite recent campaigns to increase awareness, half (48 per cent) of the working UK population do not understand what auto-enrolment is, and two in five (39 per cent) do not understand what a defined contribution pension is.
Workers are also struggling to grapple with changes in pension’s legislation with almost half (45 per cent) of those approaching retirement age not aware of pension freedoms.
Claire Finn, head of UK defined contribution pensions at BlackRock, said: “While it is surprising that half of Brits are not aware that the government already supplements their pension savings, our survey shows promise – people would contribute more if they knew the government was contributing too."
Former pensions minister Baroness Ros Altamann said she was not surprised at these results.
"They echo my own and others' findings that tax relief is too opaque as an incentive for most people.
"Let's talk about the taxpayer 'bonus' of 25 per cent which is what basic rate tax relief amounts to - and it's 66 per cent bonus for 40 per cent taxpayers.
"These are hugely generous additions to your own savings and employer contributions and salary sacrifice add even more. But people are often unaware they exist.
"I don't think it matters if workers are unaware of the term 'auto-enrolment' as their employer does this for them. Of course, they do need to understand the benefits of being in a workplace pension and the 'free money' they receive on top of their own contributions."
David Fairs, pensions partner at KMPG argued the problem is tax relief is complicated and not at all understood.
"Expressing tax relief as a matching contribution would make the government contribution more easily understood.
"Auto-enrolment has been successful in getting non savers to save but they rarely understand the detail.
"Arguably, they don't need to until they get closer to retirement but they are likely to become more interested as their pot grows. As long as they start to notice their growing pot early enough to know that auto-enrolment will not be enough to give them enough to retire comfortably that will be fine."
David Robbins, senior consultant at Willis Towers Watson, said many people in the pensions industry want tax relief rebranded as a government top-up so it is easier to understand.
"The problem is that this description does not tell the whole truth: the government does not just add money upfront, it also takes money out at the other end.
"In other words,a condition for getting the so-called government top-up is that you have to volunteer to pay tax twice on the same income.
"The only way to offer a simple ‘what you see is what you get’ top-up up would be to go down the pension Isa route that [former Chancellor] George Osborne favoured, but that has problems of its own.
"If you ask people in a survey whether more generous incentives would get them saving more, many will say yes. But many of these people will be leaving £1 for £1 employer matches on the table – so it’s not obvious that a smaller top-up from the government would be transformative."
But Tom McPhail, head of policy, Hargreaves Lansdown, was more radical.
"This research illustrates the need to rethink tax relief; as an incentive to save it is largely money wasted.
"Given the Treasury is in effect splurging billions of pounds into pensions without the beneficiaries even being aware of it, the government needs to revisit this issue as a matter of urgency and to think about how it could use public money more effectively."
