Two-thirds of Brits think the state pension won’t exist when they retire
editor2024-06-27T15:26:00+00:00More than 70 per cent of working-age Britons think the state pension will not exist in its current form when they or their children come to retire – but the majority still would not pay into someone else’s pension.
This is according to research from adviser platform Nucleus, which revealed 71 per cent of people aged 18 and above believe the state pension will not exist or will be less generous when they retire.
Carried out among 2,100 UK adults aged 18 and over, the representative survey found women tended to be more doubtful about whether the benefit will be around in years to come.
This is despite women being more likely to have to rely on it more heavily in their retirement as a result of the 35 per cent pension gap between men and women.
According to Nucleus, concerns over the personal/workplace pension gap and fears over a worse state pension entitlement in the years to come should encourage people to do more to shore up their personal pensions.
Families could be missing out on a more comfortable retirement if they are not aware of the possibility of paying into someone else’s pension.Laura Barnes, Nucleus
However, the research found 76 per cent of respondents were unaware they can pay money into someone else’s pension.
When informed about this, 21 per cent said they were more inclined to think about adding to another person’s pension instead of or in addition to their own.
But 55 per cent of respondents said they would not consider making any third-party contributions, despite the tax advantages – and despite findings in 2023 from Indiana University, which found that couples who pooled their bank accounts and balanced out each others’ pension savings tended to be happier.
This was outlined in a paper called Common Cents: Bank Account Structure and Couples’ Relationship Dynamics, which appeared in the Journal of Consumer Research.
Indeed, as reported in February this year, Hargreaves Lansdown encouraged couples to boost each others’ pensions as a romantic gesture around Valentine’s day, citing its own research from 2023 which found 73 per cent of couples did not know they could make third-party pension contributions.
See the box-out for ideas on how this could work.
How third-party pension contributions work in a nutshell
Current rules allow for up to £2,880 per year to be paid into a pension of a non-earning person. Tax relief tops up the amount to £3,600.
This is at the basic rate of tax in England and Wales of 20 per cent. Scottish Tax bands and rates of tax are different.
Contributions can also be made even if the partner is working, providing the amount remains below their annual allowance.
Parents or guardians could set up a pension for a child to give them a head start for saving for their future. Other family members would also be able to contribute in a tax-efficient way.
Example: A third-party contributor puts away £3,600 each year (£2,880 + 20 per cent tax relief) since this limit was introduced in 2001.
Since 2001, they would have contributed £65,726 in total to a partner’s pension – not including any interest or investment growth over that time.
The same limits apply to Junior Sipps.
However, both partners could use their annual gift allowances to help their young adult adult children boost their pension pots:
- If they have £6,000 they could give to an adult child (£3,000 each is allowed under the annual gift allowance)
- As long as this stays below 100 percent of income, the £6,000 can be added to the adult child’s pension
- The recipient would get £1,500 tax relief contribution (20 per cent basic tax relief)
- If the child is a higher rate tax payer, they would need to fill out tax return to claim the additional tax relief
Source: Hargreaves Lansdown/Nucleus/MFP Wealth Management
Third-party contributions can be a useful financial planning tool particularly for someone who has taken a career break – such as to raise young children or care for elderly relatives. In the majority of cases, the caring roles are taken up by women, which is significant contributing factor to the gender pension gap.
Laura Barnes, director of business development at Nucleus, said: “Sadly third-party pension contributions appear to be a closely guarded secret.
“Families could be missing out on a more comfortable retirement if they are not aware of the possibility of paying into someone else’s pension or receiving contributions from another person.”
She added: “Generally speaking, a greater number of women could see their retirement prospects improve if the family unit considers third-party contributions.
“Often caring roles have fallen to women in the past and this has impacted their earning power either because of working part-time or giving up work entirely.
“Instead of no private pension contributions being made by individuals during such times, another person – most commonly a partner or spouse – could fund a pension for them.”
The Nucleus study also found more women (79 per cent) than men (74 per cent) were unaware about the possibility of paying into someone’s pension and a higher proportion of female respondents were less likely to consider doing it.
Some 24 per cent of men who did not know said they would consider making third-party contributions, whereas the figure dropped to 19 per cent for women.
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