More than two thirds (69 per cent) of over-55s said contributing to a pension from untaxed income was the most powerful incentive to save for retirement, backing Zurich’s calls for the government to introduce a flat rate of pension tax relief.
The provider polled representative sample of 1019 UK adults, aged 55 and over, who are in defined contribution pension schemes.
Gary Shaughnessy, chief executive of Zurich UK Life, stated that three in five Britons over-55 – the generation that has benefitted most from pension tax relief – say it has encouraged them to save for retirement.
“Removing such a valuable tax break, as the government is considering, would drive people away from retirement saving. Instead of scrapping pension tax relief, the government should reinforce its value by introducing a 33 per cent flat rate that would be a fairer, simpler and more sustainable solution for people of all incomes.”
The chancellor’s Summer Budget introduced the idea of “radical change” in the way pensions are tax, most notably proposing a system more like Isas.
However, recent research from other providers has found that the popularity of such plans may lessen when people actually get their heads round how it works.
A survey last month by Aviva, of 2,000 working UK adults, found 41 per cent of people favoured an Isa-style system, where contributions are paid from taxed income, but withdrawals in retirement are tax free.
However, when it was explained that under this system most people would end up paying more tax, that figure fell to just 23 per cent.
Hargreaves Lansdown research, among 2,300 of its investors, found that the highest earners were likely to accept a move to a flat-rate retirement reward system, even if set at a rate below current tax reliefs, while the abolition of the lifetime allowance would be an essential trade-off for any tax relief reform.
Zurich’s Mr Shaughnessy argued that a flat rate relief would allow the government to remove the complex cap on lifetime savings, “which punishes people who do the responsible thing by saving early in their careers or whose investments enjoy strong returns over time”.
He added that taxing pensions upfront like Isas would weaken the culture of long-term retirement saving.
“A move to Isa style pensions could reverse the early success of auto-enrolment. If individuals are taxed on employer contributions, there is a very real concern that they would opt out to avoid a hit on their take home pay,” he said.
“This would also create a two tier system that would lead to an unnecessary level of complexity.