Tax Relief

One in 4 is extra prone to save with a greater understanding of tax breaks

A quarter of people are more likely to save extra money on their retirement if they understand better the tax break.

Research carried out by Opinium on behalf of Royal London has shown that people see pensions in a more favorable light when they better understand how they work.

This may even cause them to contribute more to their pensions over time, as nearly a third (32%) say they are now more positive about pensions.

In addition, 25% said they were more likely to increase their pension contributions.

Only 15% said they fully understood how pension benefits tax relief works, while 31% said they had some understanding.

Twenty-seven percent said they heard about it but now didn’t know how it works.

Another 27% admitted that they had never heard of tax breaks.

The research also found acute differences in understanding between men and women.

In fact, 33% of women said they were unaware of tax breaks, while a fifth of men surveyed made a similar admission.

A third of women said they had some understanding of how pension tax breaks work.

In comparison, three out of five (59%) men gave the same answer.

Jamie Jenkins, Director of Politics and Foreign Affairs at Royal London, said: “This study shows that there is still a poor understanding of the tax breaks for pensions. Only 15% of respondents say they have a thorough understanding of how they work.

“However, it is very positive that the data shows that tax breaks have the potential to change people’s view of their pension once they are better understood. A significant proportion say that they would be more likely to increase contributions as a result.

“In practice, the approach is logical – pensions are taxed as deferred wages – by deferring the income for a later date, you also postpone any taxes to be paid.

“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 number of changes to certificates in recent years that have added confusion about how the system works. “

The ability to make contributions on behalf of someone else and the use of wage and bonus offerings are other areas of pension tax relief that create confusion.

60 percent said they didn’t know they could contribute to a spouse’s or child’s pension.

There was also a low level of awareness for salary and bonus offerings. 52% and 62% respectively said they had never heard of the conditions.

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