Pensions slash tax waste – but it’s still £4.6 billion

For the first time on record, the UK’s tax efficiency has improved on the previous year – and it’s all thanks to pensions. But are we really getting better at trimming our tax bill? We unpick the puzzle in TaxAction 2016, the annual campaign from in partnership with Prudential.

First the good news: overall the UK’s tax wastage is down from 2015 by £300 million, thanks to a huge uptake of workplace pensions due to auto-enrolment. It saved a total of £1 billion in tax – but this brings us to the bad news.

Of the £1 billion of savings gained through workplace pensions, £700 million was wiped out by deterioration in other areas. As usual the culprits are:

  • Not using tax-efficient savings and investments (i.e. ISAs)
  • Failing to take steps to reduce capital gains tax
  • A lack of estate planning to reduce inheritance tax

And also:

  • Not saving enough into pensions

Workplace pensions may have come to the rescue this year, but the UK could still be making far better use of pensions in general. As a nation we also need to address the other areas of waste.


Tax Waste Trimmer

Could you take simple steps to pay less tax? Click and find out.

Here’s why taxpayers are still losing money unnecessarily:


The average employee saves £2,840 a year, gaining £568 of tax relief in the process. Around 3.4 million adults are currently in employment but not paying into a pension. If these people made the same average contribution, they would collectively save an extra £1.9 billion in tax.

Inheritance tax

The UK could have saved around £595 million more through some simple estate planning. For many families, this could be achieved by the simple measure of ensuring that life insurance pays into trust, not into the deceased’s estate.

Savings and investments

A more efficient use of cash ISAs and stocks & shares ISAs could save respectively £134 million and £208 million by sheltering the interest from income tax and the growth from capital gains tax.

Why aren’t we doing more?

We asked UK adults how much they thought about their tax bill and whether they took any measures to reduce it. Here are some of the most revealing responses:

  • 47 per cent believe they can’t pay any less tax than they do now
  • 15 per cent say they’ve already taken all possible measures
  • only 18 per cent say they have taken any action in the last year to reduce their tax bill
  • 22 per cent say they simply haven’t thought about it.

These figures show the level of tax awareness actually going down – last year 45 per cent believed they couldn’t pay any less tax, and 26 per cent said they had taken tax action in the last year. Yet the UK has become more tax-efficient, whether people realise it or not – it’s just that we can and should be doing so much more.

How to be tax efficient

Being tax efficient is not about avoiding anything – it simply means making full use of the allowances that have been provided for you. To get fully up to speed on these, and find out all the ways in which you could make use of them, talk to a financial adviser or an accountant. You can find one using our search here.


As a leading life and pensions provider to approximately seven million customers in the United Kingdom, Prudential UK is proud to sponsor’s 2016 TaxAction campaign. This year's campaign illustrates the clear value of using tax-saving vehicles such as pensions, while highlighting the financial impact of not doing so. We hope this campaign will raise awareness of the importance of tax planning and the benefits of seeking financial advice.