In 2015 HMRC commissioned a research agency to conduct independent research on pension tax relief, exploring awareness and understanding of the pension tax system in the UK. The research included discussion groups with individuals; interviews with small and medium employers; and a telephone survey. The results were originally to be published in 2016, however they were not released at that time. On 13 April 2022 the research was published in response to a request under the Freedom of Information (FOI) legislation.

Results of the survey

The results of the survey indicate that the UK government’s contribution to pensions through tax relief is not widely understood, compared to other features of the pension system. Around 90% of UK adults know that employers contribute to workplace pensions as well as employees, but only around 41% know that the government contributes to pension savings through tax relief. People with non-workplace (personal) pensions are more aware of the government contribution.

The survey indicates that women, people aged under 30 and basic rate taxpayers all tend to be less aware of the pension tax system than the average adult. These groups are also less likely to have pensions, and when they have a pension they are less informed than the average person about their own pension arrangements.

Around 57% of the people surveyed considered that tax relief played an important part in their decision to invest in a pension. However, tax relief tends to be less of a factor in the decision than the employer contribution. The level of tax relief available tends to be substantially underestimated. Improving awareness of pension tax relief and correcting misconceptions about the level of tax relief provided might therefore help increase pension saving.

For some people the actual amount they would receive in retirement was the ultimate concern. Understanding the effect of pension tax relief on retirement incomes might therefore increase the effectiveness of the relief.

Conclusions

The research shows that much of the public lacks awareness of the pension tax system and considerably undervalues the existing government contribution to pension pots. The system is regarded as complex. Improving awareness of the level of tax relief could help to increase the amount that people save through pensions.

People ultimately want to relate the amount they save to the amount they will receive in retirement. Merely raising awareness to help people understand the existing system may not make the relationship between pension contributions and retirement income any clearer. People need broader information to understand how much money they need to save to achieve the kind of retirement income they need.

Other factors outside of pension tax relief influence how much money people choose to save. There are competing demands on their income, such as the need to save for a house. People often consider that pensions are inflexible compared to other ways of saving, such as investing in property or saving through an individual savings account (ISA).

Many people in key subgroups do not engage regularly with formal communications such as pension statements. A wide range of communication channels may be needed, including informal or non-government sources of information such as friends, family, employers, and external websites that people trust.