65% do not feel they understand how workplace pensions are taxed


Almost two thirds (65%) of respondents do not feel they have a good understanding of how workplace pensions are taxed, according to research by PricewaterhouseCoopers (PWC).

Its survey of 2,000 UK adults also found that three quarters (75%) of respondents do not understand how the lifetime individual savings account (Lisa) will work.

The research also found:

  • 45% of respondents saving into a pension scheme consider tax incentives to be an important factor, and 33% of these respondents consider it to be the most important factor.
  • 15% of respondents saving into a pension scheme do not know what the tax incentives are.
  • 25% of respondents feel they understand Lisas quite well or very well.

Raj Mody (pictured), pensions partner at PWC, said: “The current tax arrangements for pensions savings are clearly not simple nor intuitive to understand. One challenge is the way that tax reliefs work, a concept which just doesn’t seem to have the same impact as more direct top-up incentives or bonuses. Pensions auto-enrolment communications had started to address this, and Lisas will take the idea a step further with explicit bonus payments.

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“What is important is that the government considers how auto-enrolled pension savings, [individual savings accounts] and Lisas interact from the perspective of the consumer. The government may well have a strategy for how the products work for different parts of the population, but an individual saver sees it all. The range of options available can clash and cause confusion.

“It is a tough choice for any individual employee to make the trade-off between the value of additional employer contributions and tax reliefs for their auto-enrolment arrangement, versus the potential greater flexibility which Lisa provides and the simpler bonus incentive. It doesn’t matter what the facts are for how all these arrangements work, it also matters how much people understand them.”