High earners have failed to claim around £1.3 billion in pensions tax relief in the last five years, according to figures obtained by pension provider PensionBee.

While the number of people failing to claim has fallen in the past five years, the amount of money going unclaimed is still too high. In 2020/21, the average amount that taxpayers failed to claim was £425 for basic rate payers, and £527 for higher rate payers. Anyone can claim tax relief on pension contributions, up to 100% of their income with a cap of £40,000. If you are a basic rate taxpayer, you’ll get a 20% top-up on your pension contributions, while if you’re a higher rate taxpayer, this increases to 40%. Additional rate taxpayers receive 45%.

The reason why higher rate taxpayers miss out on valuable extra contributions comes down to a technical way in which employers pay their staff. Those who pay to a pension provider using a “net pay” or “gross tax basis” arrangement will earn tax relief automatically. However, if your employer and pension provider operate on a “relief at source” method, the pension provider will claim 20% of the tax relief from HMRC and pay it into the pot. If you’re paying the higher rate of tax, the relief isn’t automatically applied at the higher level.

How to claim for higher rate relief

The first thing to do is check with your employer whether your pension payments are paid under relief at source. This also includes self-invested pension pots (SIPPs) that you contribute to independent of your employer. If that is the case, then to claim the additional tax relief you’ll need to fill out a self-assessment tax return. If you already do this annually that is good, you can use the form to make the claim. PensionBee says around 75% of higher rate payers already do this. However, this leaves one in four not claiming, while around half of additional rate taxpayers don’t either.

You can either fill out a self-assessment tax return, or instead contact HMRC to claim. Claims can be backdated for up to four years, which could add up to a highly valuable extra amount into your pension pot.

Pension savings are especially valuable because unlike in ISAs, your wealth is given a head start thanks to the tax-free element. This means over years of contribution and investment; your money will have more resources to grow with over time.

Of course, a pension is just one aspect of an overall wealth growth strategy. If you would like to discuss this or your options more broadly, don’t hesitate to get in touch.

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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 14th March 2023.