New research from Aviva reveals a concerning gap between perceived and actual knowledge around pensions in the UK, potentially damaging many people’s retirement finances. So how would you fare if you were asked these questions?

The survey of more than 2,000 UK adults uncovered widespread confusion about the basics of pension planning:

• 53% of Brits claim to be knowledgeable about pensions but only a third can correctly identify a Defined Benefit (DB) or Defined Contribution (DC) scheme
• 20% don’t know what type of pension they have
• More than half (57%) do not know that the government contributes to pensions in the form of tax relief
• Yet 64% of men and 43% of women said they “know what they need to know” about pensions

Aviva say that these findings point to five core pension truths that could help people better prepare for their financial future:

1          Not all pensions are created equal

Understanding the differences between DB, DC and workplace pensions is foundational. Yet, 16% of people said they don’t know what a workplace pension is, and 20% admitted they were unsure of what type of pension they currently have.

2          It’s not about age, it’s about access

Understanding when you can access your pension – whether through your workplace scheme or the state pension – is key to planning effectively. Yet only a third (34%) of Brits correctly identified that since 2011 there is no longer a default retirement age (DRA) in the UK.

Furthermore, only one in five (20%) knew that from 2015 individuals with a defined contribution pension can access their pension from age 55 under pension freedoms.

Many respondents over or underestimated when someone will start receiving their state pension, with just over one in six (17%) correctly stating that it is currently 66 years old.

3          Understanding tax relief

Pension contributions not only help secure your future but also come with tax relief. However, more than half 57% did not know that the government contributes to pensions in the form of tax relief and just 7% of people knew that the minimum level of tax relief starts at 20%. While a quarter (25%) of people with a pension have increased their contributions, nearly one in five (18%) of those who haven’t changed their contribution levels said they were unaware they could.

4          Don’t set it and forget it

Understanding how pensions are invested is crucial for long-term growth. But while one in five (19%) people actively manage their pension investments, more than half (55%) said they don’t know how their pension is invested. The majority (81%) have never changed their investment strategy, and a quarter of those say it’s because they don’t know enough, or didn’t realise they could.

5          Bring it all together

Bringing multiple pensions together can significantly help simplify retirement planning and reduce fees. But more than two thirds (69%) of people have between one and five pension pots in the UK, a further 20% are unaware how many they have. Of those who do know where their pensions are, nearly a third (35%) don’t know how to access them. Only 15% have consolidated their pensions, with a further 46% interested in consolidation, but unsure how to proceed.

Commenting on the findings, Doug Brown, CEO of Insurance, Wealth & Retirement, at Aviva, said: “These findings clearly show that, while confidence is high, people’s knowledge and understanding of pensions doesn’t necessarily match that self-assurance.

“A good grasp of pension literacy can help you to maximise your benefits by knowing when and how to claim your pensions, understand tax implications, and make the most of your employer contributions. Having a well-informed approach to retirement planning, including how to balance spending, saving and investing, means that you could have sufficient savings put aside to maintain your desired lifestyle in retirement.”

So how did you fare?

If you are a RetireEasy LifePlan subscriber you are probably well ahead of other savers in knowing what makes pension saving tick. But remember, you can keep close control of your retirement finances by regularly updating your RetireEasy LifePlan which keeps all of your relevant data in one place, and will tell you at a glance whether you are on track for the financially secure retirement you’ve been planning for.