40% of people don’t understand pension tax benefits according to the Friends First Pensions Survey

61% of Irish households have experienced a drop in income this year while 18% of households are unable to meet their monthly commitments according to a new piece of research on pensions commissioned by Friends First released today.

The survey also highlights how the challenging economic climate is taking its toll on pension contributions with 19% of people indicating that they have cut back on their pension contributions this year.

Highlights from the Friends First Pensions survey:

• 18% of households are unable to meet their monthly commitments, according to the Friends First Pensions survey
• 40% of people don’t understand pension tax benefit
• 40% have reduced the amount they are saving
• SSIA style pension scheme would encourage more to start a pension

The survey shows that of those (19%) who have cut back on their pension contributions, almost half have stopped contributing to their pension altogether.

The Friends First survey substantiates Pensions Board and CSO research showing that men (69%) are more likely to have a pension than women (50%).

Simon Hoffman, Pensions Sales Manager, Friends First said: “It is clear that the financial strain that people are experiencing is resulting in a serious pensions issue for the country. The fact that almost 20% of people have either reduced or stopped contributing to their pensions shows that there is a ticking time bomb where pensions are concerned that we need to address.”

The survey also reveals that 40% of people do not understand the tax benefits currently available to those contributing to a pension scheme.

• Just 17% of people say they fully understand the tax system in relation to pensions
• 44% say they understand to some degree
• 54% of people who say they don’t understand the tax benefits on offer don’t have a pension
• 70% of those who have a pension say they have some understanding.

The survey results indicate that the introduction of an SSIA style pension scheme would encourage more people to start a pension compared to the proposal to move tax relief on pensions to a standard rate of 30%

• 39% said an SSIA style scheme would encourage them to start a pension versus 26% who said that the proposed new tax relief system would encourage them to start one. 
• 42% of people surveyed believe that an SSIA style pension scheme would encourage them to increase their contributions compared to 22% who said that the new harmonised tax relief system would encourage them to do so.

Mr. Hoffman continued: “It is clear from this research that a composite rate of 30% tax relief on pensions won’t encourage more people to save for their retirement. There is a definite need to educate people about the tax benefits available when taking out a pension and serious consideration needs to be given to a simplified pensions system that can be clearly and easily communicated to people.”

Additional statistics revealed in the research:

• The top 3 areas that people have cut back on in 2009 are entertainment (76%), clothes/fashion (68%) and ‘little luxuries’ (66%). 
• Of those (19%) who have cut back on their pension contributions a third (33%) has reduced their pension contributions by between 5% and 10%.
• Younger people have been most affected with almost a quarter (23%) of those aged 25-34 years having reduced their pension contributions – the highest of all age groups surveyed. 
• The majority of those surveyed (64%) have either a defined benefit or a defined contribution pension while 17% have a Personal Retirement Savings Account. ·
• 20% said they do not know what kind of pension they have. This rises to 24% among 25-34 year olds. 
• Females are less well informed with 25% of those who have a pension admitting they don’t know what type of pension they have compared to 16% of men.
• 44% of participants who have a pension contribute between 6% and 10% of their salary to their pension annually.
• 55% said that their employer contributed between 1% and 5% to their pension.