Posted by Tax Innovations on 20 Sep 2011
Pension Tax Relief Imbalances
Pension tax relief is being missed out on by some 35% workers, a study by Prudential has found.
The survey of 1,600 working adults revealed that there will be a significant dependency on the state pension in years to come and that those that do contribute to a company or private pension, tend to pay in an average of 6.2% of their annual income. The study further showed that is mostly a male dominated field, with nearly 50% of women professing to not having a pension compared to 29% of men.
To further add to the imbalances for those that are not saving towards a pension, aside from facing a drop in income at retirement, they are further missing out on significant tax relief over the course of their working lives. Higher earners face a substantially greater loss because under the new Annual Allowance rules it is possible to get tax relief at up to 50% depending on the level of income, and also to carry forward unused Annual Allowances from previous years.
Vince Smith-Hughes, head of business development at Prudential, said:
“Failing to save into a pension means not only having to rely solely on the State Pension in retirement but also missing out on the ‘free money boosts’ which come with pensions, such as tax relief and employer contributions.
“When coupled with the benefits of any additional employer contributions or gains through fund performance, a pension is the best way of saving for retirement, for many people. In order to maximise pension benefits, to understand the impact of tax relief, and ultimately to secure a decent retirement income, it’s important to seek professional financial advice.”
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