Pension Tax Relief Being Missed

10/06/2014

Higher rate taxpayers who do not pay into a pension scheme are missing out on a collective £225m in tax relief every year, according to data from Prudential.

The provider said one in ten higher rate taxpayers, who have an average annual salary of £63,000, are currently not making pension contributions.

The poll showed respondents who did make additional personal contributions put away an average of £523 a month gross, getting tax relief of just over £200 a month or £2,500 a year directly into their pension fund.

Prudential tax specialist Clare Moffat 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.”

Moffat warned: “A career spent earning a relatively high income doesn’t guarantee a comfortable retirement. It’s easy to see how pension contributions can be overlooked.”

However, she added it was never too late to take action and start saving into a pension scheme.

The changes to pensions and how people can take their retirement income announced in the Budget in March will provide savers and retirees with more choices and flexibility – making it even more important to take advice from an Independent Financial Adviser.

Savers should not assume they are currently 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, self-invested personal pensions and stakeholder pensions, only receive basic rate 20% 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 15% admitted to not knowing whether or not they do claim tax relief. The research also found that another 6% do not make any additional contributions to their company pension scheme and therefore miss out on valuable tax relief.

If you would like more information on tax planning opportunities centred on your personal circumstances, please contact us >>

Written by Sam Gulley | Financial Planning Consultant

Sam joined Mantle Financial Planning in 2009 having previously been with Alexander Forbes and HSBC bank. Read more >>

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