New research has found that two-thirds people are confused by the complexities of pension tax relief.
An Aviva study of 2,000 working people in the UK, published on 29 August, found that 66 per cent of respondents had little or no understanding of how the tax system affected pension contributions. The findings also showed that:
- one in ten had never heard of pension tax relief
- almost half believed the language used when it comes to pensions was unclear and difficult to understand
- but 12 per cent thought their understanding of pensions had improved since the pension freedoms were launched earlier this year.
The findings came as Aviva called for pension savers to receive a flat rate of incentive from the government, regardless of their earnings, and for the term pension tax relief to be scrapped.
Andy Briggs, Aviva’s chief executive officer for the UK and Ireland, said: “The research we’ve done shows that nearly two-thirds of people don’t really understand tax relief and one in ten have never even heard of it.
“A pension can be one of the biggest investments a person makes in their life. If they don’t understand the incentive to save that is being offered then this needs to be changed. It’s no wonder many people question the value of saving into a pension when two-thirds admit they have very little understanding of the current system of pension tax relief.
“Let’s call it what it is – the government’s contribution to your pension. Matched contributions have been shown to incentivise savings and the current system can be redesigned to give a simple accompanying message of ‘Buy 2 get 1 free’ so for every £2 someone contributes to a pension the government will contribute £1.
“This is fair and doesn’t give the biggest incentives to those earning the most, which is how the current system works. It is often affordability that holds many people back from making increased contributions so our proposal recognises that people need a clearer, up front incentive to encourage long term-savings.”
The government is currently consulting on whether there is a case for reforming pension tax relief, to strengthen incentives to put money aside and improve simplicity for savers, or whether it would be best to retain the existing system.
Details of the consultation, which closes on 30 September, can be found here.