By Daniel Hunter
New research from PwC has revealed that people would prefer their pensions to be treated more like Individual Savings Accounts (ISAs).
The PwC surveyed nearly 1,200 (1,197) working adults following George Osborne’s consultation, launched in the Summer Budget, to radically review how pensions are taxed.
When asked to choose the most appealing tax scenario for their pension, only just over a quarter (27%) picked the current system — where people and their employers receive tax relief on their pension contributions, and the pension is partially tax free at retirement with the remainder being taxed.
Moving pensions towards a similar tax treatment as ISAs, where you contribute out of post-tax income and any returns are tax free, is by far the most popular preference, with four in 10 respondents choosing this option as they say they would rather be taxed while they are working, rather than in their retirement. People also say it would help them better plan for their retirement as they won’t have to factor in tax deductions. Only one in seven people say the current tax exemptions on pension contributions incentivise them to save.
Six in 10 people said that constant changes by the Government to how pensions are taxed is the biggest barrier putting them off saving more into their pension. This is followed by people not understanding how much they need to save for an adequate retirement and the pensions system being too complicated.
The research revealed that the majority of people also don’t understand how pensions are taxed, with two thirds of people surveyed not able to correctly identify the current system.
Philip Smith, head of PwC’s defined contribution pensions team, said:
“Our research shows that the current system is far too complicated and continuous changes are putting people off saving more towards their retirement."