Higher rate taxpayers lose £296 million in tax relief
Higher-rate taxpayers are missing out on £296 million a year in tax relief, worth an average £1,200 a person.
The research from life company Prudential found that six out of 10 people fail to claim the higher rate of tax relief that they are entitled to on their pension contributions.
In addition, four in five higher rate taxpayers were unsure if they claimed the extra relief or not.
HM Revenue & Customs estimates that 55% of 900,000 higher rate taxpayers in the UK contribute to defined contribution pension schemes, but many only receive the 20% basic rate relief worth £85 a month.
Members of occupational pension schemes receive basic and higher rate relief automatically through payroll, but members of personal and stakeholder pension schemes that are entitled to higher rate relief need to claim the additional relief through an annual tax return, or by informing HMRC.
Matthew Stephens, tax expert at Prudential, comments: "The good news is that it's possible to claim backdated tax relief, for up to three years for those who don't need to complete a tax return, and this money could make a large extra contribution towards their pension fund."
He adds: "Surely no one would knowingly turn their nose up at a potential £1,020 extra tax saving?"
This article was written for our sister website Money Observer
A form of money purchase defined contribution pension launched by the then Labour government in April 2001 with low charges and no-frills minimum standards. Designed to appeal to people on low and middle incomes who wanted to save for retirement but for whom existing pension arrangements were either too expensive or unsuitable, the stakeholder didn’t really take off and looks to be superceded by the National Employee Savings Trust (NEST).
Defined contribution pension
Often referred to as a “money purchase” scheme, although offered by employers (who may pay a contribution) these pensions are more likely to be free-standing schemes that a person contributes to regardless of where they are employed. Here, the level of benefit is solely dependent on the accumulated value of the contributions and their performance as investments. Therefore, the scheme member is shouldering the risk of their pension, as the scheme will only pay a pension based on the contributions and investment performance. The final pension (minus an optional 25% that can be taken as tax-free cash) is then commonly used to purchase an annuity that would provide an income for life.