Complexity of pensions puts people off saving

The complexity of the British pension system puts 6 in 10 people off saving ‘because they don’t understand the system’ according to a new report.

Accountants PriceWaterhouseCooper (PwC) say women and young workers are particularly affected.

Not enough

They also claim that current contribution levels are not enough to give people the £22,200 a year retirement income they are hoping for, with an average shortfall of £4,000 a year.

The firm calculated that for workers to hit target they would have to save 15% of their annual income towards their pension from the age of 22. But research has shown that only 1 in 20 workers are putting aside more than 10% of their salary. Many are saving as little as 5%.


Raj Moody, head of pensions consulting for the firm, said: “It is clear that many people’s expectations of their pension pot and the reality at retirement will be very different as people simply are not contributing enough to their pensions.

“Any system that is asking people to lock up their money for many years needs to be simple to understand, trusted and sustainable to encourage greater savings levels. It also needs a strong, up-front incentive.”


Their suggestions for improvements include:

  • A single rate of tax relief on pensions contributions
  • Taxing money put into pensions in return for an up-front contribution by the government
  • Improving financial education

They also specified there needs to be a focus on contributions made by those enrolled automatically into pensions schemes.

Tax relief

Duncan Howarth, another pensions expert, agreed that the system of tax relief should be simplified to encourage more middle and lower earners to save.

“We believe we should go to a single tax relief rate of 33%. Effectively we can promote that by saying that if you invest £2, you’ll get £1 back from the government. A simplification of the message is a way we can incentivise people for the long term,” he said.


A recent report by the Pensions Policy Institute showed that more than 5 million of people have been automatically enrolled into a pension.

But the report also highlighted that 32% of employed women, 16% of men and employees from some ethnic minority groups are below the earnings threshold required for automatic enrolment.