Figures from HMRC show that 55 per cent of the estimated 900,000 higher rate taxpayers in the UK contribute to defined contribution pension schemes.
They have an average salary of £51,580 and make contributions of £425 each month on average. Basic rate 20 per cent tax relief is received automatically at source and is worth £85 on a monthly contribution of £425.
New independent research commissioned by Prudential shows that higher rate taxpayers are losing a collective £296m a year because they fail to claim the additional 20% relief available for them on their pension contributions.
It is estimated that a total of nearly £300m is unclaimed every year in higher-rate tax relief. The average higher rate taxpayer loses £1020 a year because she or he does not claim the relief. The research also showed that fewer than one in five higher rate taxpayers knew whether they had claimed tax relief or not, while only 22% of respondents said they did claim all the pension tax relief they were entitled to.
Members of occupational pension schemes receive basic and higher rate tax relief automatically through their payroll. But members of personal pension schemes, including GPPs (Group Personal Pension Schemes), SIPPs (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.
Prudential has stated that if people act before the end of January next year, they can claim for their pension contributions going back as far as the 2010/11 tax year – if they are required to fill in a tax return. Those who don’t need to do a tax return can claim for relief for as far back as the 2008/09 if they act before the end of October 2012.
Matthew Stephens, Prudential’s tax expert, said: “It’s astonishing that so many people fail to claim this valuable tax relief, which could help enormously in meeting the cost of retirement. Surely no one would knowingly turn their nose up at a potential £1,020 extra tax saving?”
The research indicates that a majority of higher rate taxpayers should take immediate steps towards boosting their retirement pot by seeking advice and claiming their entitlement. The opportunity may not exist forever – many tax experts feared that higher rate tax relief on pension contributions would be removed in the last Budget and still feel that in the present economic climate any tax relief provision is vulnerable to legislative change.