Article date: 29 August 2015
New figures from Aviva have revealed that two thirds of people struggle with the complex nature of pension tax relief1.
The study, of 2,000 working people in the UK, found that 66% of those surveyed had little or no understanding of how the tax system impacts pension contributions. The findings also showed that:
- One in 10 had never heard of pension tax relief
- Almost half believe the language used when it comes to pensions is unclear and difficult to understand.
- But 12% thought their understanding of pensions had improved since the pension freedoms were launched earlier this year
The findings come as Aviva has reiterated its proposals2 for incentivising retirement saving. The insurer is calling for savers to get a flat rate of incentive from the government, regardless of their earnings, and for the term ‘pension tax relief’ to be scrapped.
Andy Briggs, CEO UK & Ireland Life at Aviva, said:
“The research we’ve done shows that nearly two thirds of people don’t really understand tax relief and 1 in 10 have never even heard of it. For some it’s like a foreign language – ‘do you speak pension?’
“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. In contrast, in an ISA system all of the tax is paid up front, along with the contributions. Affordability becomes a real issue here as many savers will have to pay upfront tax and national insurance on the contributions made by their employer during their working life, rather than just paying income tax on the benefits they receive when they retire.
“I believe ‘buy 2 get 1 free’ is clear, simple and demonstrates the financial benefit of paying into a pension.”
The survey also showed some signs of improvement in customers’ understanding. 1 in 10 people thought their understanding of pensions had increased since the freedoms were introduced back in April. Those aged over 55, the age group most directly affected, were most likely to say their understanding had improved. It provides a sign that making pension saving more engaging can help to capture people’s interest. For many though, the incentive to save into a pension still remains unclear.
“It is a worry,” said Andy Briggs. “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.”
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Notes to editors:
1. Survey of 2000 working adults in the UK carried out by One Poll on behalf of Aviva, Aug 2015
- Aviva provides life insurance, general insurance, health insurance and asset management to 34* million customers, across 16 markets worldwide
- In the UK we are the leading insurer serving one in every four households and have strong businesses in selected markets in Europe, Asia and Canada. Our shares are listed on the London Stock Exchange and we are a member of the FTSE100 index.
- Aviva’s asset management business, Aviva Investors, provides asset management services to both Aviva and external clients, and currently manages over £245 billion in assets.
- Aviva helps people save for the future and manage the risks of everyday life; we paid out £24.6 billion in benefits and claims in 2014.
- By serving our customers well, we are building a business which is strong and sustainable, which our people are proud to work for, and which makes a positive contribution to society.
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* Before the deduction of overlapping customers.