More people want pensions 'taxed like ISAs'

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By Isabelle Bell

11 August 2015

More people want their pensions to be taxed in a similar way to ISAs, according to a new study.

The PwC survey of nearly 1,200 working adults found that more people (40%) would prefer to make their pension contributions out of their post-tax income and receive tax-free returns, instead of the current system.

Around a quarter of those surveyed (27%) picked the current tax system for pensions, where people and their employers receive tax relief on their pension contributions, and their pension is partially tax-free at retirement, with the remaining portion taxed.

The research follows the launch of a HM Treasury consultation into reforming pensions tax relief.

PwC said that the 'ISA-style system' was the most popular preference because people would prefer to be taxed while they are working, rather than in their retirement.

The survey also suggested that most people do not understand how pensions are taxed. Furthermore, six in 10 people said that constant changes to how pensions are taxed by the Government are the biggest barrier to them saving more into their pensions.

Philip Smith, head of PwC's defined contribution pensions team, said the research shows that the current system is "too complicated" and is "putting people off saving more towards their retirement".

He said: "People want a once in a lifetime overhaul of how pensions are taxed to create a simple and stable system which they can understand and trust. Moving towards an ISA-style tax system would create consistency across people's savings pots and help people plan for their future with more certainty. Our research shows people would much rather take the tax hit on their retirement savings while they are working, rather than having to worry about tax deductions in their retirement.

"However, moving to a new tax system for pensions is no easy task for an industry that is already grappling with the pensions freedom changes. This would require a huge re-think from employers, pension providers and the Government to how they provide pensions."

ICAS members can share their comments on the Government's proposals to reform pensions tax relief by sending them to ICAS at accountingandauditing@icas.com by 31 August 2015.

Source: PwC

Topics

  • Tax
  • Pensions

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