According to research* conducted earlier in the summer by Portal Financial, 59% of survey respondents** felt that the current pension system offered a good incentive to save. However, 95% of survey respondents*** with a household income of over £30,000 believed much more should be done to encourage people to save for retirement.
Portal Financial believes that the current tax relief system, where income does not get taxed on the way into a pension, but instead on the way out when it hits your pocket (“Exempt-Exempt-Taxed”) is a simple concept to understand and offers a good incentive for people to save, but that greater engagement and understanding must be a priority. Their suggestions include:
• Making it as easy as possible for people to save into pensions directly from their employer if PAYE, without the money ever entering the tax regime, removing the need to claim back tax relief from HMRC;
• Highlight this on salary slip e.g. “These earnings are untaxed”;
• Invest in educating young people on advantages of saving and in implementation of tools, such as pension savings calculators, in schools;
• Simplify communications around pensions to make performance and forecasting illustrations easier for savers to understand; use less jargon;
• Encourage employers to give the option of putting a percentage of any employee’s pay rise straight into their pension.
Jamie Smith-Thompson, managing director, Portal Financial, said:
“The key to making pensions tax relief sustainable for the future is to ensure that saving into a pension as a retirement savings vehicle is a ‘no-brainer’ compared to other alternatives, and that people are educated and encouraged enough to save sufficiently to remove the burden on the state when they reach a pensionable age. We need a clearer, simpler level of communication that highlights the benefits to the saver. The more self-sufficient they are come retirement, the more sustainable the future economy will be.”
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