10th June 2014
More than £225m in pension tax relief goes unclaimed every year as 10% of higher rate taxpayers do not make a personal contribution to their retirement savings pot according to research from Prudential.
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The insurer’s study found that the typical higher rate taxpayer earns nearly £63,000 a year. But of those surveyed, who make additional personal contributions to a defined contribution, or stock market linked, company pension typically save £523 a month gross, receiving tax relief of just over £200 a month or over £2,500 a year directly into their pension fund.
Prudential’s research also found that nearly 60% of higher rate taxpayers paying into group pension schemes do claim or receive the additional tax relief on pension contributions they are due. However, 15% admit to not knowing whether or not they do claim tax relief. The research also concluded that a further 6% do not make any additional contributions to their company pension scheme and therefore miss out on valuable tax relief.
Clare Moffat, a tax specialist at Prudential, 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 concedes that it is easy to see how pension contributions can be overlooked but a career spent earning a relatively high income does not guarantee a comfortable retirement.
But the good news is that it is never too late to take action and to start saving as much as possible she added, noting that the changes to pensions and how people can take their retirement income announced in the Budget in March – whereby savers will no longer be forced to by an annuity – will provide savers and retirees with more choices.
“Pension savers shouldn’t assume they are 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 GPPs (Group Personal Pension Schemes), SIPPs (Self Invested Personal Pensions) and stakeholder pensions, only receive basic rate 20 per cent tax relief automatically. They need to claim the additional relief through their annual tax return or by informing HMRC,” Moffat added.
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