Some 40% of respondents want pensions to be treated in a similar manner to individual savings accounts (Isas) because they would prefer to be taxed while working rather than in retirement, according to research by PricewaterhouseCoopers (PWC).
The survey of 1,197 working UK adults, published in August 2015, also reveals that just over a quarter (27%) find the current system the most appealing tax scenario for their pension.
The research also found:
- Just one in seven say the current tax exemptions on pension contributions incentivise them to save.
- 60% of respondents say that constant changes to how pensions are taxed is the biggest barrier putting them off saving more into their pension.
- Two-thirds of respondents are unable to correctly identify the current pensions taxing system.
Philip Smith, head of defined contribution consulting at PricewaterhouseCoopers, said: “Our research shows that the current system is far too complicated and continuous changes are putting people off saving more towards their retirement.
“People want a once in a lifetime overhaul of how pensions are taxed to create a simple and stable system that they can understand and trust.
”Moving towards an Isa-style tax system would create consistency across people’s savings pots and help people plan for their future with more certainty. Our research shows people would much rather take the tax hit on their retirement savings while they are working, rather than having to worry about tax deductions in their retirement.
“However, moving to a new tax system for pensions is no easy task for an industry that is already grappling with the pensions freedom changes. This would require a huge re-think from employers, pension providers and the government to how they provide pensions.”
Following the Summer Budget, the government launched a consultation into the reformation of pensions tax relief, which will close at the end of September.
During his Budget speech, Chancellor George Osborne said: “Britain isn’t saving enough. I am open to further radical change. Pensions could be treated like Isas: you pay in from taxed income, and it is tax free when taken out, and inbetween it receives a top up by the government.”