Nucleus research reveals 76% of people are unaware they can pay money into someone else’s pension

Research from Nucleus, one of the UK’s leading, independent, adviser platform groups, has revealed 76% of people are unaware they can pay money into someone else’s pension.

Of those who did not know about the possibility of third-party pension contributions, 55% said they would not consider making any. 

The remaining 21% in the unaware group were more inclined to think about adding to another person’s pension instead of or in addition to their own.

 
 

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. 

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. 

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. 

 
 

Contributions can also be made even if the partner is working, providing the amount remains below their annual allowance.

But the option is not limited to spouses. For example, 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. 

Of the 2,100 people aged 18 and above who took part in Nucleus’ recent survey looking at retirement confidence levels:

 
 

·       8% said they were previously aware of third-party contributions but would not consider paying into someone else’s pension. 

  • Meanwhile, only 4% who were aware of the possibility said they would consider making contributions for someone else or have already done so. 
  • A further 12% responded “don’t know” when asked to best describe their opinion around awareness of pension contributions.

Overall, more women (79%) than men (74%) 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. Almost a quarter (24%) of men who did not know said they would consider making third-party contributions, whereas the figure dropped to 19% for women. 

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.

“Worryingly, even when people are made aware, the majority say they would not consider doing it, our research suggests. There could be many reasons for this including affordability concerns, lack of personal planning and being put off by constant changes to the pensions system.

“For others it may be a case of them not feeling fully informed or understanding the benefits.

 
 

“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.

“If these women were to receive pension contributions from a partner it could go some way to reduce the gender pensions gap, which currently stands at 35%.

“Private pensions play a huge role in retirement income but on average women would need to work for almost two decades more to retire with the same pension amount as men.

 
 

“Shouting more loudly about pension contributions – both personal levels and third-party contributions could be a step in the right direction.

“There’s work to be done to increase awareness and to make this secret common knowledge.”

As an example, if five payments of £3,600 (including tax relief) were paid into someone’s pension from age 35, assuming growth of 4% a year net of charges, this would provide them with an additional fund of approximately £61,000 at age 67. 

 
 

Taken as an annuity, this could look like an extra £4,000 for life in retirement, having cost £14,400 over five years. 

Elsewhere in the research, Nucleus found the majority of adults (71%) believe the state pension will not exist or will be less generous when they retire.

Overall women were more doubtful about whether the benefit will be around in years to come and yet many will need to rely on it more heavily in their retirement. This makes it even more vital to try to plug some of the gaps in their private pension. 

 
 

The research also revealed people are feeling less confident about their retirement prospects and this is heightened for women.  

Nucleus will be releasing the next UK Retirement Confidence Index in November 2024.

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