Personal Pension  

Top rate taxpayers lose £225m a year in pension tax relief

More than £225m in pension tax relief is going unclaimed every year by higher rate taxpayers, according to research from Prudential.

The survey conducted in August 2013 among 302 top rate taxpayers found the average higher rate taxpayer earns nearly £63,000 a year.

Those surveyed who make additional personal contributions to a defined contribution company pension scheme contribute on average £523 a month gross, receiving tax relief of just over £200 a month or more than £2,500 a year directly into their pension fund.

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Clare Moffat, a tax specialist at Prudential, said: “Saving into a pension offers valuable tax relief to all workers and particularly to higher rate taxpayers. With a lower threshold for higher rate tax more people stand to benefit from extra tax relief on pension contributions.

“However, our research shows that a significant number of higher rate taxpayers are passing up the opportunity to receive an extra helping hand with their future retirement income.

“A career spent earning a relatively high income doesn’t guarantee a comfortable retirement. It is easy to see how pension contributions can be overlooked. But the good news is that it is never too late to take action and to start saving as much as possible.”

She added that the radical pension changes announced in March’s Budget will provide savers and retirees with more choices, thereby making it “even more important” to take advice from a financial adviser or a retirement specialist.

Ms Moffat said: “Pension savers shouldn’t assume they are receiving all the tax relief they are due. Members of occupational pension schemes receive basic and higher rate tax relief automatically through their payroll.

“But members of personal pension schemes, including group personal pension schemes, Sipps and stakeholder pensions, only receive basic rate 20 per cent tax relief automatically. They need to claim the additional relief through their annual tax return or by informing HMRC.”

Prudential’s research also found that 59 per cent of higher rate taxpayers paying into defined contribution group pension schemes do claim or receive the additional tax relief on pension contributions they are due.

However, 15 per cent admit to not knowing whether or not they do claim tax relief.

The research also found that another 6 per cent do not make any additional contributions to their company pension scheme and therefore miss out on valuable tax relief.