Professor John Hills, serving on the team of the Adair Turner Pensions Commission, has opened the lid on its concerns over a lack of understanding of the pension system, ahead of the much-anticipated report due to be released in the Autumn.
Speaking this week at the Pensions Policy Institute annual general meeting, Hills says while the structure of tax relief and incentives for saving through pensions garners a great deal of public support for pensions provision, it is poorly understood by so many who might stand to benefit from them.
He says: “Public understanding of pensions and the choices we face is very low, and at times the debate has been poorly informed.”
Hills stresses the central campaign of the Commission is to provide a solution to the UK pension problem either through the current path of voluntary savings, or through a system where a greater element of compulsion is instilled.
He argues however: “Either way, whether the incentives are understood is crucial – in the first case obviously - as how will behaviour otherwise be affected but also in the compulsory case. If the state were forcing you to do something, it would seem perverse for it to hide the sugaring that goes with the pill.”
The Commission's concern over the lack of understanding on the structure or value of tax reliefs among individuals is reiterated by figures published in its first report, indicating only a sixth of basic rate taxpayers and only 28% of higher rate tax-payers can identify the rate at which they received tax relief on their contributions.
Moreover, the Commission received evidence from the ABI revealing 18-29 year-olds with a private pension do not realise they can receive a tax-free lump sum as part of their pension, which is a major tax relief package for basic rate taxpayers.
The Pensions Commissiont adds few respondents to its first report defended the status quo, with many calling for better use or reform of existing pension tax reliefs.
Hills points out four main possible reform solutions received by the Commission including:
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