Aviva study reveals critical knowledge gap about UK pensions

New research from Aviva reveals a concerning gap between perceived and actual knowledge around pensions in the UK, reinforcing the need for greater financial literacy and support. Addressing these areas will help bridge the knowledge gap and ensure that more people are prepared for a financially secure retirement.

The survey of more than 2000 UK adults uncovered widespread confusion about the basics of pension planning. While more than half (53%) claim to be knowledgeable about pensions, only a third can correctly identify what a Defined Benefit (DB – 35%) or Defined Contribution (DC – 34%) scheme is, and one in five (20%) don’t know what type of pension they have. 

Those aged 25–34 appear the most confident with 76% saying they were sure they knew what they needed to about pensions. However, this confidence doesn’t necessarily equate to understanding with just 44% of this age group able to correctly identify the characteristics of a Defined Benefit (DB) pension, and only 45% know the features of a Defined Contribution (DC) scheme.

Also, while 64% of men said they were knowledgeable about pensions (versus 43% of women), accuracy around the specifics was more balanced with 47% of men and 45% of women correctly describing what a workplace pension is.

These findings point to five core pension truths that could help people better prepare for their financial future.

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. This uncertainty spans across all age groups, including those nearing their retirement. Overall, only 35% correctly identified what a DB pension is, and just 34% could explain what a DC pension is. 

Defined benefit and defined contribution schemes have different structures and benefits. A DB scheme promises a specific payout at retirement, often based on your salary and years of service. Whereby a DC scheme’s payout depends on the contributions made and the investment performance of those contributions. Knowing which type of pension you have should help you plan your finances more accurately.

A workplace pension is where employees save for their retirement through a scheme arranged by their employer.  A percentage of your pay is automatically deducted and put into the pension scheme every pay day. Your employer also contributes to the pension, and you receive tax relief from the government. 

It’s not about age, it’s about access

Just over a third (34%) of Brits correctly identified that since 2011 there is no longer a default retirement age (DRA) in the UK¹.  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.² 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.

Understanding when you can access your pension – whether through your workplace scheme or the state pension – is key to planning effectively. Knowing when you want to retire helps you gauge how much you’ll need to save and how long you have to build up your pension pot, empowering you to make informed decisions about your future.

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.

Don’t set it and forget it

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.

Understanding how pensions are invested is crucial for long-term growth. Different investment strategies can impact the growth of your pension fund, so risk tolerance and retirement goals are crucial considerations for your pension plan. 

Bring it all together 

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.

Bringing multiple pensions together can significantly help simplify retirement planning and reduce fees. For example, Aviva’s free ‘Find and Combine’ service is designed to help people track down lost pots and explore their options, which can provide a clearer view of savings and make them easier to manage. This end-to-end pension tracing service not only traces lost pensions but also checks them for valuable or safeguarded benefits and fees – a feature that is currently unique in the market.

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. At Aviva, we believe that financial literacy is the cornerstone of financial wellbeing. By empowering people with better pension knowledge and the tools they need, we aim to help them make informed decisions about their financial futures to help them get ready for retirement.

“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.”

There are a host of websites and tools available to help improve your knowledge about pensions. The Money Advice Serviceprovides free and impartial advice on pensions and retirement planning. It covers everything from understanding different pension types to managing your pension pot. Aviva’s own website  also offers a range of helpful information – including a pension calculator to show you the pension pot you could have when you reach retirement age, the effect of choosing a regular income with an annuity or taking pension drawdown, and the tax-free lump sum you could get from age 55 as well as helping you find any lost pensions and consolidating them easily.