Almost 40% of young workers believe they are in a final salary pension

Britain’s younger workers think their pensions are considerably better than they will turn out to be, a new report suggests.

Nearly 40 per cent of people aged between 18 to 24 said they thought they were part of a final salary pension scheme, found research by campaign Get Britain Pension Ready.

This is despite the fact most final salary pension schemes were phased out in almost all of the private sector long before the time that 18 to 24-year-olds entered the workplace. 

Final salary schemes are a type of defined benefit pension, where the employer is responsible for payments in retirement, based on an employee’s years of service and their pay at their career’s end.

Even in the public sector, most have now been replaced by less generous career average defined benefit schemes, which pay out based on earnings smoothed over time. 

Over a quarter of people aged between 18 and 24 claimed they had a ‘great deal’ of understanding about pension terminology, data seen by This is Money from the campaign run by Annuity Ready reveals.

However, the findings suggested the high levels of understanding about pension products and how they work appeared, in some cases, to be ‘misplaced’ when tested against knowledge of certain terms. 

Most workers in the private sector are now in defined contribution pension schemes, where both they and their employer contribute to a pot invested to provide a fund for retirement. Turning this into retirement income is the saver’s responsibility.

Defined contributuon schemes are less generous than defined benefit schemes, put the onus on the saver rather than the employer, and are less likely to provide a comfortable retirement. 

On the topic of retirement planning, 30 per cent of 18 to 24-year-olds said they would turn to social media for assistance, nearly four times the national average of 8 per cent. 

Across all age groups, 41 per cent said they believed their parents had an easier experience with pensions and retirement planning than they do, with 52 per cent of those aged 18 to 24 claiming their parents’ generation had it easier. 

The belief in a good knowledge about pensions – misplaced or not – declined with age, the survey said. 

Annuity Ready found that more than a quarter of those in the Generation X age group – typically born between 1965 and 1980 – admitted to having ‘no understanding at all’ about pension terminology.

This is despite older members of Gen X being ‘next in line’ to retire.

Dr Eliza Filby, independent generational expert for Annuity Ready, said: ‘What we’re seeing here reflects broader societal shifts that have particularly impacted Generation X.’

She added: ‘This cohort entered the workforce during a period of significant pension reform, witnessing the decline of final salary schemes and the shift toward more complex, individual responsibility for retirement planning.’

What is an annuity? 

An annuity is a financial product that provides an income for the rest of someone’s life. 

Until relatively recently, this is how most people turned their defined contribution or personal pension pots into retirement income.

Rock bottom annuity rates after the financial crisis led to an event called pension freedom, where the requirement to buy an annuity was removed from people – and they could choose to keep their pension invested and draw on it instead.

Most savers moving into retirement now take this option, although a recovery in annuity rates has made them much more attractive again. 

On the topic of annuities, 35 per cent of over-65s said they knew about annuities and what they were. This is notably higher than the national average of 25 per cent, Annuity Ready said. 

Of those aged 55 to 64 years old surveyed, 27 per cent said they had a strong understanding of annuities. 

Annuity Ready said: ‘With this group being made up of the older half of Generation X and young Baby Boomers likely still in employment, this may suggest the cohort’s proximity to retirement has likely driven familiarity with specific pension products.’ 

People aged 45 to 54 and those aged 35 to 44, showed the lowest levels of understanding of annuities, the research claimed. 

Over-65s generally appeared to take a self-reliant approach to retirement planning, as 27 per cent said they do not ask anyone for advice. This compared to 13 per cent across all age categories.  

Sarah Lloyd, commercial director at Annuity Ready, said: ‘Education is such a fundamental part of pension preparedness, and the earlier we can help people get the information they need to start planning for retirement, the better.

‘The misconceptions we’re seeing – like 39 per cent of young adults believing they’re enrolled in final salary pensions that were largely phased out before they entered the workforce – highlight just how important accessible, accurate information is.’  

Filby added: ‘While Gen Z’s over-confidence in their understanding may be concerning, Gen X’s knowledge gaps represent a more immediate crisis, as this generation approaches retirement with limited time to plan for their future beyond work.’

The research was was conducted by OnePoll on behalf of Annuity Ready and surveyed 2,000 adults living in Britain between 3 and 5 May 2025. 

Pension jargon and shifting policies     

Pensions can feel complicated and the jargon involved means it is no wonder people struggle to keep abreast.

With terms like defined contribution, income drawdown and enhanced annuities, it is not difficult to see why some people’s knowledge is lacking. 

Equally problematic are ever-shifting pension policy changes and rumours of further tinkering.

The new full state pension went up by £472 a year from 6 April. Under an arrangement called the triple lock, the state pension goes up each year by the highest of 2.5 per cent, inflation, or earnings growth. This policy is regularly being debated as unaffordable, with talk of it being axed.

In Rachel Reeves’ Budget last year, the Chancellor announced plans to bring pensions into scope for inheritance tax from 2027. At present, only people who die aged 70 or under do not have their pensions 

In May, the government reportedly fleshed out its plans for reforming the pension industry, including the creation of £25billion ‘megafunds’ which will be instructed to make a portion of their investments locally to help fuel economic growth. 

Rachel Reeves said the overhaul, designed to follow the example of Australia and Canada’s huge pension investment funds, would also help boost people’s pension pots.