More than a million retirement savers are hiking their pension contributions in response to the governments new pension freedom proposals.
Half are saving an extra 5% a month, while 25% are stashing extra 10% cash into their pensions as a result of the new rules, says pension provider AXA Life Invest.
The firm argues that Chancellor George Osborne’s revolutionary overhaul of the pensions system to give over 55s easier access to their cash and scrapping tax penalties for passing on unused funds on death have breathed new life into pension saving.
Not only are more than a third of retirement savers upping their contributions direct from their salaries, but another 30% will switch cash from other savings into pensions now their cash is not locked away for so long.
The radical pension rules have changed the way many people consider pensions, says the firm’s UK managing director Simon Smallcombe.
“People now see a pension as a family asset instead of somewhere that cash seemed to get lost for years and then stopped savers from spending as they wished,” he said.
“Our research found eight out of 10 savers now regarded a pension as a family asset rather than a personal savings plan. That change in thinking is completely down to the way the government has revamped the rules.”
Smallcombe went on to explain that the pension industry now has to introduce equally radical changes to provide the products that offer a family investment and match the financial flexibility that the Chancellor demands.
One of the key acts by the Chancellor was to axe the 55% death tax on unspent pension funds.
This allows many pensioners to pass on their lifetime savings without tax to their loved ones – providing they nominate a beneficiary to their pension provider.
If they do not, their pension fund is swallowed into their estate and distributed along with the rest of the deceased’s wealth.
“The pension industry has to get out of the rut that stacks up penalties for retirement savers who want to share their pension with their life partners,” said Smallcombe.
Not only are pension funds easier to access and to pass on at death, but contributions attract tax relief at the saver’s marginal rate of tax – the highest rate of income tax that they pay on their annual earnings.
For a basic rate taxpayer, every £80 in contributions is topped up by £20 to £100 by HM Revenue & Customs (HMRC).