Less than a third (31%) of people are able to identify the purpose of pension tax relief, Hargreaves Lansdown (HL) has revealed.

Tax relief is where some of the money that would have been paid to the Government goes into a pension pot, and investors can currently get tax relief on pension contributions at what is known as the marginal rate.

The financial services firm’s survey found that while pension tax relief acts as an incentive for retirement, the majority of people do not know what it is.

HL found that higher rate taxpayers (47%) were also more likely to understand pension tax relief compared to basic rate taxpayers (35%).

Of the 2,000 people who took part in the research, 44% said they don’t know what pension tax relief is, while others thought it enabled people to take income tax-free (7%) or claim back tax in retirement (7%).

Furthermore, 8% thought pension tax relief was a means by which the Government matched people’s pension contributions.

Head of retirement analysis at Hargreaves Lansdown, Helen Morrissey, said that it is time to "raise awareness of this hidden hero of pensions" to help people make the most of their retirement savings.

She added: "Not being aware of how tax relief works can mean you don’t make the most of it. One key example is understanding how much tax relief you are receiving and whether you need to act to claim more. If you are in a salary sacrifice or net pay scheme, where your contribution is made before tax is calculated, then you will receive tax relief on your contribution at the correct rate.

"However, if you are contributing to what is known as a relief at source scheme then your pension contribution is taken from your after-tax pay. This means that you will only get 20% tax relief on your contribution so if you pay tax at higher or additional rates you will need to claim the extra relief yourself through your tax return."

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