"More and more people have been squeezed into the 40% tax band and they may not realise they need to claim to additional 20 per cent themselves."
Individually, this amounts to £225 each – or £6,750 that could boost retirement funding at the end a typical 30-year span of pension contributions.
Research shows that a fifth of Britain’s 7.9m personal pension savers have not claimed the full amount of tax relief they are entitled to on their pensions savings.
Higher rate taxpayers – those earning more than £43,000-per-year - are eligible for 40% tax relief on private pension contributions. While 20% of that is claimed automatically by their pension provider, savers must themselves claim the other 20% through a tax return.
Since 2010, the number of people paying the 40% tax rate has gone from 3.3 million to almost 5 million. The government also aims to increase the threshold by £2,000 to £45,000 from next year.
Based on HMRC data on annual personal pension savings, some £360m will be lost in unclaimed relief from the estimated £9.03bn saved into personal pensions this year.
Reasons cited for not claiming the full tax relief include forgetfulness, not being aware of it and the perceived hassle of making a claim.
The £360m lost in unclaimed tax relief this year is the equivalent of £10.8bn of funds missing from pension pots after 30 years, if savers claimed the money and paid it into their pensions.
True Potential Senior Partner, Neil Johnson, said: “The system for claiming full tax relief is complicated. More and more people have been squeezed into the 40% tax band and they may not realise they need to claim to additional 20 per cent themselves. It’s a double hit because some savers are not only missing out on the extra tax relief, but also the growth on it, if it were reinvested into their pension.
“The days of pensions tax relief, especially at higher and additional rates, look to be numbered so my advice to everyone is to check that you’re getting the full tax relief that you’re entitled to before it’s too late.”
