Personal Pension  

Aviva tells gov’t ‘rethink the way you explain pensions’

Aviva tells gov’t ‘rethink the way you explain pensions’

Two separate surveys on the subject of the government Green Paper on pension tax have found both support for reform and confusion about the existing system.

A study carried out by Aviva on 2,000 working people in the UK found that two thirds had little or no understanding of how the tax system impacts pension contributions, while one in 10 had never heard of pension tax relief.

Almost half believed the language used when it comes to pensions is unclear and difficult to understand, with Aviva’s UK and Ireland chief executive Andy Briggs arguing that the government should use more understandable terminology.

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“Matched contributions have been shown to incentivise savings and the current system can be redesigned to give a simple accompanying message of ‘buy two get one 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.

Meanwhile, a survey of 2,370 investors - a mix of individuals drawn from Hargreaves Lansdown’s clients and external sources - during August, showed strong support for some form of upfront incentive, with only the over 70s favouring an Isa style system without an up-front retirement reward.

Statistically, 78 per cent preferred an upfront incentive, with a strong overall message in favour of the flat rate at 33 per cent.

Higher earners unsurprisingly favoured the current income-tax based system of incentives, although a substantial minority of 40 per cent taxpayers favour the flat rate system even though they would get less money from it.

When asked which system would result in the most being saved into pensions overall, there is widespread support for the flat rate system, even amongst the 45 per cent taxpayers.

The only age group showing any sympathy for the continued use of the lifetime allowance is the over 70s, while the under 50s clearly see the LTA as a problem, with between 60 and 75 per cent of them saying they would save more in pensions if the LTA were abolished.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said that investors have made it very clear that they would welcome a simpler system than the present one, however any attempt to scrap up front savings incentives altogether would have catastrophic consequences for the UK pension savers.

“Tax relief is inefficient and poorly understood. The alternative of a ‘retirement reward’ set at a flat rate for all would be fairer, simpler and more effective.”