More than 2.3 million higher and additional rate taxpayers in the UK are missing out on pension tax relief they are entitled to, potentially reducing their retirement savings by hundreds of thousands of pounds.
Analysis by investment platform InvestEngine has revealed that failing to claim tax relief could slash pension pots by £350,000 for those saving £400 monthly over a 40-year period.
The findings show that 46 per cent of higher and additional rate taxpayers with personal pensions are not claiming their full tax relief entitlement, leaving significant sums of retirement money unclaimed.
According to InvestEngine’s research, more than half of the 7.44 million people in the UK who pay higher or additional tax rates currently contribute to a personal pension.
This amounts to approximately 4.9 million adults who earn £50,271 or more annually and are eligible for pension tax relief. Data from HM Revenue and Customs (HMRC) reveals that between 2016 and 2021, £1.3billion of tax relief went unclaimed.
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Millions of Britons risk missing out on £350,000 pension boost – how to claim
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The scale of unclaimed relief is particularly concerning as it affects millions of workers who could be building significantly larger retirement funds through proper tax relief claims. There are two distinct systems for pension tax relief in the UK, depending on the type of scheme.
Most workplace pensions automatically collect contributions from gross income, requiring no additional tax relief claims. However, for personal pensions and some workplace schemes, contributions are made after income tax has been deducted.
In these cases, pension schemes automatically collect the basic 20 per cent tax relief from HMRC. Higher rate (40 per cent) and additional rate (45 per cent) taxpayers must manually claim the remaining tax relief through a Self Assessment tax return.
This manual claim requirement explains why many higher earners are missing out on their full entitlement. For someone contributing £400 monthly to their pension over 40 years, their pot would be worth £192,000 before tax relief.
InvestEngine is sounding the alarm over missing pension savings
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The Government automatically adds 20 per cent basic rate relief, worth £1,200 annually or £48,000 over the full period.
Higher rate taxpayers could claim an additional £1,200 per year through Self Assessment, potentially adding £108,000 more to their pension over 40 years.
For those able to invest the maximum tax-free amount annually, with seven per cent yearly growth, failing to claim higher rate relief could reduce their pension pot by more than £350,000.
Andrew Prosser, the head of Investments at InvestEngine, said: “We know that as a whole people in the UK aren’t saving enough for the retirement they want, but those who are able to put away good sums may still be losing out by not claiming all eligible tax relief while being hit with high fees.
“Over time this could reduce pension pots by hundreds of thousands of pounds.
“Those paying the higher rate of tax and contributing to a personal pension should ensure they are claiming back all eligible tax from HMRC, while checking their pension providers’ fees to see whether they could be getting a better deal elsewhere.”
LATEST DEVELOPMENTS:
Britons are being urged to check their eligibility for tax relief
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The investment platform has launched a new tax relief calculator to help those with personal pensions work out their potential entitlement.
The company has also removed fees on its Self-Invested Personal Pension (SIPP) to help maximise retirement savings.
Taxpayers are encouraged to consider making additional pension contributions where possible, which would provide further tax relief and boost their overall retirement fund.
InvestEngine is urging higher and additional rate taxpayers to ensure they claim all eligible pension tax relief.
