How much do your clients know about pension tax?

26 May 2021
A recent survey has highlighted the need to help clients understand the benefits of pensions tax relief and what it could mean for their pension savings.

Understanding how tax relief works

The survey carried out by Opinium on behalf of Royal London, asked 2,000 UK adults what they knew about pension tax. Our findings show that the basic principles of saving into a pension remain a mystery to many, with 27% of people admitting that they’d never heard of pensions tax relief.

Only 15% of those surveyed said they fully understood how tax relief works on pension contributions, while a further 31% said they had some understanding and the remaining 27% said they’d heard of pensions tax relief, but didn’t know how it worked. Differences in understanding are particularly acute between men and women, with one third (33%) of women having no knowledge of tax relief, in comparison to a fifth (20%) of men. A further third (33%) of women said they had some understanding of how pensions tax relief worked, in comparison to almost three in five (59%) men.

The data shows that when people had a better understanding of how pensions tax relief works, it made them view pensions more positively and could lead to them contributing more towards their pension over time. Overall, almost one third (32%) said they now viewed pensions more positively, while 1 in 4 (25%) said they’d be more likely to increase pension contributions as a result.

This research shows how pension tax relief remains poorly understood with only 15% of people saying they have a full understanding of how it works, However, there is a huge positive in that the data shows that once people do understand it better then tax relief has the potential to change how people view their pension, with a significant proportion saying they’d be more likely to increase contributions as a result.

Jamie Jenkins, Director of Policy and External Affairs at Royal London

Other areas of pensions tax relief

The ability to pay contributions for another person as well as the use of salary and bonus sacrifice were other areas of pensions tax relief that caused confusion.

Of those questioned, 60% said they were unaware they could contribute to the pension of a spouse or child, enabling them to benefit from the tax relief, as well as the boost to their pension contribution.

There were also low levels of awareness around salary and bonus sacrifice, with 52% and 62% respectively saying they’d never heard of the terms.

Content to share with clients

Use the following items with your clients to help them understand how pension tax relief works and the benefits of saving into a pension:

Clients can also access a range of articles and guides on our financial wellbeing hub.

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit royallondon.com.

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.