Baroness Ros Altmann, the former Minister of Pensions, has commented that the current form of tax relief is not working.
Following a new study assessing the UK’s understanding of the pensions system and tax relief, she commented:
“It’s meant to offer an incentive to get us to save for retirement, but it is so complex that most people don’t understand it. Without knowing how it works and how valuable it is, it clearly cannot provide much incentive for increasing contributions.”
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The newly revealed research indicates that the system is confusing, an issue not helped by “constant tinkering”, and it’s putting millions of people at risk of experiencing old age in poverty, despite tax relief from the government.
Each year, these reliefs cost the UK government £40 billion, but only one in every three savers surveyed stated they were the cause of them saving into a pension. Additionally, over 50 per cent of respondents confirmed they had no understanding of the way pension tax reliefs work or how much relief they are entitled to.
Altmann has suggested that a less complex and easily understandable system would be exceptionally helpful in increasing understanding and could encourage more people to put savings in their pension pots.