Pensions: Taxing on the way out more popular than on the way in

Article date: 9 September 2015

Public support for pension ISAs almost halves when tax implications are explained.

New research from Aviva has shown that public support for using an ISA-style saving system for pensions almost halves when the tax implications are explained1.

A survey was carried out asking working people which system of tax incentive for pension contributions they would prefer. 41% of people opted for an ISA style system where contributions are paid from taxed income, but withdrawals in retirement are tax free.

However, when it was explained that using the ISA system most people would end up paying more tax2, that figure fell to just 23%.

In contrast, the number of people in favour of the current system of tax relief (pension contributions are tax free but withdrawals in retirement are taxed) rose from 20% to 34% once the tax implications of pension-ISAs were explained.

Andy Briggs, CEO UK & 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. The figures show that two thirds of people didn’t realise that at least £20 out of every £100 in their pension comes from the Government.

“This is why at Aviva we are calling for the tax relief system to be made fairer and simpler. We need to remove different rates of relief for different incomes and offer everyone a flat rate of 33%.

“Once that is in place we need to make it easier for people to understand. Just call it “Buy 2 get 1 free” so everyone knows that each time they pay £2 into their pension the Government will add £1. It’s a simple, clear and fair incentive for all savers.”

While the term ‘ISA’ has now become common, Aviva’s research showed there is still limited understanding of how they work. Almost 60% of people surveyed failed to correctly identify how ISAs are taxed. Over 55s were the most savvy when it came to ISAs with half of those asked understanding how the savings accounts are taxed. That figure fell to less than a quarter for under 25s.

Aviva’s survey also found, that when compared to some of the current terminology used around pension tax relief, the majority of people felt they could most easily explain ‘Buy 2 get 1 free’. More than half opted for the slogan when it was put alongside other terms such as ‘pension tax relief’, ‘taxed at your marginal rate’ and ‘flat rate of pension tax’.

“Many people have heard of ISAs and many will probably feel quite comfortable with it being associated with pension saving,” said Andy Briggs. “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.

“I’m pleased that people have backed our ‘Buy 2 get 1 free’ initiative as it is a cornerstone of what we are trying to achieve – making pension saving simpler, fairer and more attractive.”

1. Survey of 2000 working UK adults carried out by One Poll on behalf of Aviva, August 2015.
2. Under an ISA 100% of contributions are subject to income tax and national insurance, whereas under a pension, national insurance is not payable on employer contributions and income tax is payable on only 75% of the benefits withdrawn.

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If you are a journalist and would like further information, please contact:

Ben Moss in the Aviva Press Office : Landline: 0117 928 5843 : Mobile: 07827 832 395 : Email:

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