More than 400,000 higher rate tax payers could miss out on a boost to their retirement savings by failing to claim relief on pension contributions at the end of the month.
Every employee contributing to a personal pension automatically receives 20% tax relief on their contributions – but many top rate tax payers are unaware that they have to submit a self-assessment tax return to claim their extra relief.
By filing a tax return online by January 31, 40% tax payers double their relief on contributions, while 50% tax payers gain an extra 30% relief.
Pension providers are warning that many stakeholder or group pension scheme members realise they have to claim the extra relief – and most employees do not have to submit self-assessment tax returns, so do not see the claim forms.
Standard Life head of pensions policy John Lawson said: “The problem is that very few higher rate taxpayers do tax returns now which means they’re not automatically claiming the higher rate relief on their pension contributions any more.”
All employees in group pension schemes automatically receive basic tax relief of 20%, but those earning more than the threshold of just over £42,000 have to apply to get the higher tax relief.
The problem is compounded by a change in tax thresholds for the last tax year that introduced several thousand new higher rate tax payers by reducing the earnings limit.
As a rule of thumb, anyone earning more than £42,000 when they add their tax free allowance to gross pay qualifies for the extra pension contribution relief.
“Employers need to communicate with these employees to say they deducted contributions out of your net wages and you’re a higher rate tax payer so you have to claim the additional relief yourself,” he added.
For an employee earning £60,000, a year, contributing 5% of earnings in to a pension, this would mean losing n £600 in tax-relieved contributions.
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