BLOG: Dear Chancellor, Please rebrand pension tax relief
Let’s face it, the government are actively encouraging us all to save for our own retirement with the introduction of auto-enrolment and a minimum pension contribution of 8 percent of salary set to be in place by 2018.
But while they are all too keen to get us saving, it seems they are not doing themselves any favours when it comes to promoting what is widely regarded as one of the main benefits – pension tax relief.
If you’re not familiar with the term (and we’re fully aware that many aren’t) and its benefits, pension tax relief is essentially the government automatically topping up your own contributions into a pension fund by £20 for every £80 contributed if you’re a basic rate taxpayer. Additional relief can be claimed back through your tax return if you’re a higher or additional rate taxpayer.
It’s essentially free money given to you by the government as an incentive to save, however the current terminology doesn’t get that point across in the way that it could.
No one likes the term ‘tax’
Other than the Treasury, government and HM Revenue and Customs, no one likes the term tax and, with that in mind, it’s surprising that such a term is still being used to encourage people to save.
Whether we like it or not, we all have to pay tax but it’s certainly not seen as something positive. When it comes to pension tax relief, a negatively associated term is being used to badge up a benefit of saving and the question we must all ask is why?
Rebadge in conjunction with the overhaul?
With a radical overhaul of pensions outlined in this years’ Budget, there is surely no better time to rebadge the term ‘pension tax relief’ into something a little more positive and encouraging which explicitly outlines to savers the benefits.
Perhaps terms such as a ‘pension bonus’ or ‘pension top up’ would work better for the wider population and offer explicit encouragement and justification for contributing into a pension?
Pension providers & financial advisers have a role to play
Perhaps there is also a duty on pension providers and financial advisers to actively educate the wider public as to the benefits of pension tax relief and dispel the confusion attached to it due to the current terminology.
While the government has the overall control on whether or not pension tax relief is, going forwards, renamed into something a little more encouraging, if all parties work towards the same goal – encouraging individuals to save for their retirement – a far more positive attitude towards pensions as a whole is sure to occur and surely that’s only a good thing?
Matthew Rankine is technical sales and marketing manager at Liberty SIPP
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