Higher-rate taxpayers forgoing pension saving, Pru
A quarter of higher-rate taxpayers do not contribute to a pension scheme despite the significant tax relief they would receive, research from Prudential suggests.
The company estimates around 216,000 employees are missing out on up to £438m per year in pension tax relief.
In a study of employees earning between £42,275 and £149,999, Prudential found 21 per cent said they cannot afford to contribute to a pension scheme, while 13 per cent said they do not see the point of saving for retirement despite tax benefit.
Another 17 per cent of said they do not know why they fail to save into a pension scheme.
An average higher rate taxpayer contributing £425 a month into a pension fund receives basic rate tax relief of £85 a month or £1,020 a year, directly into their pension fund. Up to an additional £1,020 a year in higher rate tax relief can be claimed, which could also be used for pension saving.
Figures from HMRC show that around 58 per cent of the estimated 900,000 higher rate taxpayers in the UK contribute to defined contribution pension schemes, while another 15 per cent are members of either non-contributory or defined benefit schemes.
But despite earning average salaries of £58,541, the rest do not save into pension schemes at all. Around 43 per cent of those who don’t save into a pension scheme claim to have made alternative retirement arrangements, 4 per cent have existing self-invested schemes and another 2 per cent claim they will not retire.
Matthew Stephens, tax expert at Prudential, said: “Pension saving offers valuable tax reliefs to all workers and particularly to higher rate taxpayers.
“Basic rate 20 per cent tax relief is available at source plus up to an extra 20 per cent from HMRC for higher rate taxpayers. Turning down what is effectively free money simply does not make sense.
“It is worrying that so many higher rate taxpayers say they cannot afford to save into a pension despite earning healthy salaries. The good news is that it is never too late to take action on saving for retirement and we urge all workers to seek advice on long-term retirement planning.”