Less than a quarter (23%) of respondents would opt for an individual savings account (Isa)-style system for pensions after gaining a full understanding of the tax implications, compared to an initial 41%, according to research by Aviva.
Its survey of 2,000 working adults found that the number of respondents that prefer the current system of tax relief for pensions increased from 20% to 34% after it was explained that contributions are paid from a taxed income under the Isa-style system.
The research also found that 59% of respondents were unable to correctly identify how Isas are taxed, with the highest degree of understanding among older respondents. While 51% of respondents aged 55 and over understand how Isas are taxed, this figure falls to 24% among the under 25s.
Andy Briggs (pictured), chief executive officer UK and Ireland Life at Aviva, said: “Our research again shows that people are confused. Pensions and the tax system around them can be difficult to understand and that can act as a barrier to people saving more for their retirement.
”Many people have heard of Isas and many will probably feel quite comfortable with it being associated with pension saving. But as the survey suggests, most people don’t know how they work and when they do, their support drops.
“Showing that younger people are least likely to be clear on how different saving products work is important. The younger someone starts saving for a pension, the more money they are likely to have when they come to retire, and the less likely they are to need to put away huge chunks of their salary in their 40s, 50s and 60s.”