Citywire printed articles sponsored by:
View the article online at http://citywire.co.uk/money/article/a605721
40% taxpayers miss £300m of free pension cash a year
Thousands of people are failing to claim pension top-ups from the government.
by Michelle McGagh on Jul 23, 2012 at 08:43
Higher-rate taxpayers are missing out on nearly £300 million of pension contributions every year by failing to claim tax relief.
People who pay 40% income tax are entitled to 40% tax relief on their pension contributions. This money is not paid to taxpayers in cash but added to their pension pot, effectively boosting contributions.
If higher-rate taxpayers pay contributions into a pension then they only receive tax relief of 20%, the basic rate of income tax. If you are paying into a group pension scheme, such as a defined benefit or defined contribution scheme, then your employer will claim the full 40% relief back for you, so you do not have to claim through an annual assessment.
However, if your employer pays into a group personal pension (GPP) then you may have to claim back the extra 20% tax. Although GPP sounds like it should be a group scheme, it is actually lots of private pensions grouped together so is not counted as a true groups scheme.
A survey by Prudential showed 59% of higher-rate taxpayers are failing to claim back the extra 20%, missing out on a combined £295.8 million each year in extra pension contributions.
Are you missing out on pension cash?
Fewer than a fifth, 19%, of higher-rate taxpayers knew whether they had claimed tax relief or not, with just 22% saying they claimed all the tax relief to which they were entitled.
Figures from HM Revenue & Customs estimate 900,000 higher-rate taxpayers in the UK belong to 'defined contribution' schemes offered by their companies. With these the ultimate size of a person's pension pot is determined by how much the individual and his or her employer pay into the scheme and on the rate at which the money grows once it is invested.
Clearly, missing out on the extra tax relief will reduce the amount that higher-rate tax payers could contribute.
According to the survey, they have an average salary of £51,580 and make contributions of £425 each month. Although they are claiming 20%, or £85, of tax relief, they are missing out on another £85 each month or £1,020 a year of free money.
Prudential tax expert Matthew Stephens said taxpayers should claim the extra relief through their tax return, and can claim back as far as 2008/09 if they act before October 2012.
‘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 a potential £1,020 extra tax saving,’ he said.
‘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 should make a large extra contribution towards their pension fund.‘
More about this:
More from us
- Workplace pension saving falls to new low
- Labour steps up attack on 'rip-off' pensions charges
- What your finances could really look like in retirement
- 'Money safe' guarantee could protect workers' pensions
- Not saving is the only wrong pension decision you can make
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add firstname.lastname@example.org to your safe senders list so we don't get junked.