FOR ADVISERS ONLY
How much do your clients know about pension tax?
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:
- Your guide to pension tax relief – a closer look at how pension tax relief works in practice.
- Cost of delay leaflet - highlights the effect putting off saving into a pension can have and why it’s important for clients to take control of their financial future.
- Can I save more into my pension? - shows clients who are currently working from home, the difference adding the savings from their work commute could make to their retirement goals.
- How higher rate tax relief works in practice - client-facing case study which looks at how higher rate tax relief works in practice and how claiming higher rate tax relief can benefit a client over time.
- A guide to salary exchange (increased take home pay) and A guide to salary exchange (increased pension contribution) – a closer look at how salary exchange works in practice.
- The importance of inheritance planning – a case study which looks at the benefits of saving into someone else’s pension.
Clients can also access a range of articles and guides on our financial wellbeing hub.