Many people don't know that as well as their monthly contributions to their workplace pension, they can also make ad hoc lump sum contributions, for example from their bonus payment - subject to their workplace scheme rules and having regard to their annual and lifetime pension tax allowances.
The added benefit of putting some or all of their bonus into their workplace pension is that like all contributions to pensions it will have tax relief (at the employee's marginal tax rate) added too. So, if an employee contributes £1,000 of their bonus to their pension, with tax relief this will mean between £1,250 and £1,666 will be added to their pension (for 20% and 40% tax payers respectively).
This is nothing to be sniffed at as these added benefits can be significant and particularly beneficial if they are taken from pre-tax earnings.
But as this research from Aviva shows, very few employees understand tax relief and the benefit they are potentially leaving on the roadside. Education changes that: with almost 40% more employees saying they would opt to sacrifice bonus direct into their pension following this targeted education.
Imagine the benefit to the pension savings of millions more workers if this simple piece of financial education was given to them.
Aviva: Nine in ten lose out on tax relief due to poor understanding 28 March 2017 Savers do not understand pensions tax relief as 90% fail to put any of their bonus into a company scheme, according to research commissioned by Aviva. The survey of 2012 adults during February 2017 by Censuswide revealed widespread misunderstanding of what the government top-up could offer them. It found only 24% grasped the tax advantage of having their bonus paid directly into a workplace pension while 39% chose to spend it on a treat, like shopping or a holiday. However, education could make a difference as 33% said they would opt to have some or all of their bonus paid into the company scheme when the tax benefits are explained to them.