One in four people would be more likely to increase pension contributions if they understood tax relief better, according to new research.
A survey of 2,000 UK adults carried out by Opinium on behalf of insurer Royal London found that 15% of respondents fully understood how tax relief on pension contributions works, while a further 31% had some understanding. The remaining 27% had heard of pension tax relief but did not know how it worked.
The research highlighted that one-third (33%) of women had no knowledge of tax relief compared to one-fifth (20%) of men. A further third (33%) of women had some understanding of how it worked, whereas almost three in five (59%) men said they had some understanding.
Of those questioned, 60% said they were unaware they could contribute to the pension of a spouse or child, which would enable them to benefit from the tax relief as well as the boost to their pension contribution.
Commenting on the research, Jamie Jenkins, director of policy and external affairs at Royal London, believes the research shows how pension tax relief remains poorly understood.
He said: “However, there is a huge positive in that the data shows that once people do understand it better then tax relief has the potential to change how people view their pension, with a significant proportion saying they would be more likely to increase contributions as a result.”
Jenkins added: “In practice the approach is logical – pensions are taxed as deferred pay – by deferring income for later in life, you also defer any tax payable. There are then additional incentives, such as tax-free investment growth and the tax-free lump sum. However, the picture has been complicated by a series of changes to allowances in recent years, which has contributed to the confusion on how the system works.”