Less than one in three (31%) people understand the purpose of pension tax relief, according to Hargreaves Lansdown.
Higher rate taxpayers (47%) were found to be more likely to understand than basic rate taxpayers (35%).
Overall, 44% of people said they didn’t know what pension tax relief was.
The findings showed that nearly one in 10 (8%) thought it was a means by which the Government matched people’s pension contributions, while 7% believe it enables pensioners to take income tax free no matter how much it was. A further 7% thought it allows people to claim back tax once they had retired.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Pension tax relief is a major incentive to get people saving for retirement and yet the majority of people don’t know what it is. We need to raise awareness of this hidden hero of pensions to help people make the most of their retirement saving and save them from any nasty surprises.”
Pension savers can receive tax relief on any contributions made up to their annual allowance, with basic rate taxpayers receiving relief of 20%, higher rate taxpayers 40% and additional rate taxpayers 45%.
Morrissey added: “Not being aware of how tax relief works can mean you don’t make the most of it. One key example is understanding how much tax relief you are receiving and whether you need to act to claim more. If you are in a salary sacrifice or net pay scheme then you will receive tax relief on your contribution at the correct rate.
“However, if you are contributing to what is known as a relief at source scheme then your pension contribution is taken from your after-tax pay. This means that you will only get 20% tax relief on your contribution so if you pay tax at higher or additional rates you will need to claim the extra relief yourself through your tax return. Some workplace pensions and all personal pensions – such as SIPPs – are set up under relief at source so you need to be aware of this so you can get the tax relief you are entitled to.”
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