Explaining the pension superpower you need to know about

"Less than a third of us understand how our pensions are topped up by the tax system. Research by Hargreaves Lansdown found that fewer than a third, just 31 per cent, of people could identify the purpose of pension tax relief. Pension tax relief is a major incentive to get people saving for retirement and yet the majority of people don't know what it is."

"When you pay money into your pension, some of the income tax that would otherwise have gone to the Treasury is redirected into your pension instead. For a basic-rate taxpayer, earning 100 normally means 20 going in income tax and 80 lands in your bank account. If you put that 80 into your pension, the Treasury adds the missing 20, taking the total contribution back up to 100. The effect is that your pension gets a boost before the money is even invested."

"I think it's possibly the word relief' causing the understanding issue it's quite vague, says Becky O'Connor, director of public affairs for PensionBee, suggesting something more specific like tax-free pension contribution would be clearer. Whatever it's called, it's vital to grasp it because if you don't, you can't truly understand the magic of pensions and why they are so brilliant for long term saving."

Fewer than a third of people can identify the purpose of pension tax relief, with only 31 per cent demonstrating understanding. Pension tax relief redirects income tax that would have gone to the Treasury into individuals' pension pots, increasing contributions before investment. For a basic-rate taxpayer, contributing 80 results in a 20 top-up to reach 100. The term "relief" causes confusion; clearer phrasing like "tax-free pension contribution" could improve comprehension. Awareness of pension tax relief is important because it is a major incentive to save for retirement and prevents unpleasant surprises in retirement planning.

Read at www.independent.co.uk