20/08/2024

7 mins

The latest statistics from Drewberry’s 2024 Workplace Pensions Report reveal 50% of the UK workforce is confused about pension tax relief and salary sacrifice.

These are important aspects of a Workplace Pension scheme. However, the findings suggest a lack of understanding among employees, which creates a challenge for employers. It has the potential to affect employees’ financial wellbeing and hinder their long-term saving goals.

For employers, this issue can manifest into reduced employee satisfaction and retention, and a lack of benefits engagement. This article aims to shed light on these problems and provide solutions on how to bridge the knowledge gap.

50% Of Employees Don’t Understand Pension Tax Relief Or Salary Sacrifice

It’s good to see that the vast majority of the UK workforce are contributing to their Workplace Pensions each month.

92% yes, opted in
4% no, opted out from the start of my employment
3% no, opted out part-way through my employment
1% yes, but plan to opt out.

However, many don’t understand the critical elements, such as tax and salary sacrifice. This has the power to impact their future and retirement savings.

Majority Of Employees Still Don’t Understand Tax Relief

There’s still a knowledge gap when it comes to understanding tax relief. In our 2022 Workplace Pension survey 48% said they didn’t understand it, and although this has reduced this year, there are still 40% who don’t understand this element of pensions.

The good news is 50% of staff have a good understanding of pension tax relief. But, this does show a large number of employees still lack knowledge in this area.

Half The Workforce Remains Clueless About Salary Sacrifice

It’s not just tax relief that employees don’t understand, there’s a lack of understanding when it comes to salary sacrifice too.

We asked “Have you heard of salary exchange (also called salary sacrifice?) and understand how it works?”:

38% have heard of it and understand how it works
31% said that they have heard of it but don’t understand it
25% haven’t heard of it
6% not sure.

Using salary sacrifice for a Workplace Pension is a tax-efficient way for employees to contribute to their pension scheme. It provides the employer and employee with National Insurance savings, as well as many other benefits.

Salary Sacrifice: An Untapped Benefit Unknown to Most UK Employees

It’s not just the fact that employees don’t understand what salary sacrifice is, a large majority of UK employees don’t even know if their employer offers this option. This suggests a significant knowledge gap. The survey found that:

20% have been offered salary exchange pension contributions
24% of employees haven’t
And 56% of employees were not sure if their employer did.

While salary sacrifice offers significant benefits, its true value often goes unrecognised if employees are not aware that you provide this option.

Depending on how it’s set up, employees could be getting more in their take home pay (known as “simple salary sacrifice“), or contributing more to their pension (known as “SMART salary sacrifice“), as a result of the tax benefits. This is a great opportunity to highlight it as a valuable employee benefit and improve your employee engagement.

Integrating salary exchange into your pension scheme enhances your benefits offering and provides significant tax savings for both you and your employees.

Boosting contributions not only makes your Workplace Pension more valuable, it helps your employees secure their financial futures.

Nick Nelms
Senior Consultant, Employee Benefits

Employees Are Keen To Learn More

It’s clear that employees lack sufficient knowledge about their pensions, especially when it comes to tax relief and salary sacrifice. However, they want to bridge this knowledge gap and they want help from you as their employer.

When asked “Do you feel your employer could do more to educate you about your company pension?” over half said they would like more information.

44% had some education but could do with more
27% no, they communicate well
22% yes, I’m not clued up at all.

Salary Sacrifice & Tax Benefits Top Of Education Wishlist

When we asked what employees want more education on, salary sacrifice and tax benefits were in the top three. These came after financial planning and how to save for retirement.

As an employer, you have a responsibility to provide a suitable Workplace Pension and educate your employees about it.

If you provide sufficient pension education, your employees will be more engaged with their pension scheme and start to see the true value of their savings and the benefit.

Bridging The Knowledge Gap: How You Can Support Your Employees

It’s not just salary sacrifice and tax that employees are struggling to get their heads around. 70% of employees said that didn’t understand or only somewhat understood their current pension scheme.

This suggests that more needs to be done to help educate employees when it comes to pensions in general. Below are several strategies to help you get started when it comes to educating your staff.

1. Improve Communication

Communication is key. There are mandatory pension communications to fulfil as an employer. Aside from these, there’s still plenty to learn about pensions, and these go beyond sending out regulatory information after setting up the scheme.

Get imaginative about how you share information.

Flyers and fact sheets
Infographics and interactive webinars
Pension education workshops
Emails / newsletters
1-2-1s.

All the above help to encourage employee engagement with their pension scheme. When used as part of your company’s competitive benefit strategy, it can make all the difference to how much your team knows about their Workplace Pension.

2. Provide Clear And Accessible Information

To foster a learning culture in the workplace, ensure information is clear, easy to digest, and accessible. Break down jargon and explain complex concepts in simple language. You can use visuals such as graphs, tables and videos, to better illustrate key information. For example, a table breaking down how much an employee can save through the salary sacrifice method.

3. Offer Financial Education In Benefits Proposition

As an employer, you have a powerful tool in your arsenal: your employee benefits package. By offering financial benefits, you can help your employees to improve their pension knowledge and financial literacy.

Aim to include financial adviser-led sessions, regular pension updates from providers, and financial education programs in your benefits package. These can be tailored to different pension areas, so you can tackle specific knowledge gaps.

4. Introduce Employee Benefit Platforms

Employee benefit platforms can help staff learn more about their workplace pension at their own pace. It enables your employees to take learning into their own hands and improve their financial knowledge.

The best platforms are easy to use, accessible, and contain all of your benefit information in one-centralised location.

Nadeem Farid Head of Employee Benefits at Drewberry

My.Drewberry shows your company pension scheme as a visual ‘card’. This holds information about an employee’s pension, including how the scheme is set up, contributions, and more.

Employees can access their pension provider’s documentation at the touch of a button, and use a variety of tools (such as tax relief calculators) to help them get to grips with the scheme.

Nadeem Farid
Head of Health & Wellbeing Benefits

Get Expert Pensions Advice

The confusion surrounding pension tax relief and salary sacrifice among the UK workforce is a significant issue that employers must address. By proactively educating employees, you can enhance financial well-being, improve retention rates, and strengthen your reputation as a supportive and competitive employer.

For further support with your workplace pension scheme, get in touch by calling 02074425880 or email help@drewberry.co.uk. Our financial consultants are industry experts and can provide support for your Workplace Pension scheme.

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