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£225m in pension tax relief unclaimed by higher-rate taxpayers

Higher-rate tax payers are missing out on £225m in tax relief every year by failing to pay into a pension, according to Prudential.

A survey by the insurer of 302 higher-rate tax payers found 1 in 10 make no contribution to a pension. 

Extrapolated nationwide this means as many as 90,000 higher rate taxpayers are paying nothing into a pension, missing out on £2,510 in tax relief a year each.

The Pru also found the average amount put into a pension by higher-rate tax payers who do save is £523 a month or £6,276 a year, far below the £40,000 annual allowance.

The Government has come under fire for bringing more people into higher-rate tax by lowering the tax thresholds.

Prudential tax specialist Clare Moffat says this also has an upside, though people are failing to capitalise on it.

She says: “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. “

Although 6 in 10 people paying into a defined contribution group pension do receive or claim their relief, some 15 per cent do not know if they are receiving the benefit. Another 6 per cent made no additional contributions.

Moffat says savers should not assume they are receiving all of the relief they should be.

She says: “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, self invested personal pensions 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.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Headline was rather “clickbaity” but I bit anyway! Hardly earth shattering news with accesible alternatives such as ISAs around.

  2. Michelle Cutler 10th June 2014 at 8:59 am

    I’m surprised its not more, given how many people fall into higher rate who would not consider completing a tax return!

  3. I agree with you Michelle. The other scam relates to those who fail to mention their pension contributions (whether or not they complete a tax form as you mention) and then cannot claim back more than 4 years pension relief once the oversight is discovered despite having full evidence of contributions for earlier years in their possession. One rule for HMRC and another one for us! When I saw the headline I thought it was about this issue.

  4. Rt Hon Sir Arthur Streeb-Greebling 10th June 2014 at 11:42 am

    A ‘survey’ the Pru says? Nothing in the HMRC Annual Report to support this statement. But if true, consider the following: How did anyone so stupid as to not claim tax ‘relief’ (actually deferment) get to be a hihr rate taxpayer in the first place?

  5. Michelle Cutler 11th June 2014 at 10:05 am

    I don’t think it has anything to do with stupidity it’s about behaviour and incentives, something we can translate to a lot of our industry interactions with customers. Make something hard to understand in layman’s English or difficult or time consuming to do and people, including sensible and clever ones, won’t engage. If you don’t have an accountant to complete the form for you, there is the fear of the unknown, the time required and the need for information to be gathered which may be difficult if you work full time (or more) in order to earn in the higher rate band at all. Compounded with the fact that it would take you a few minutes and some mathematical ability to work out how much in hard pounds you’d miss out on, I can see why for many it’s just easier to let it go until you earn well above the start of the higher rate band.

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