Over a quarter of higher-rate taxpayers with defined contribution pension schemes are failing to maximise their full tax relief, according to a survey by Prudential
In the report, published today, the financial services firm said that, of the 302 respondents to its poll, 26% of employees earning more than £41,451 are not claiming higher rate tax relief on pension contributions. This means higher earners could be losing out on an average tax relief rate worth around 40%, with £229m going unclaimed. Around 182,500 higher-rate taxpayers are not claiming tax relief that could be worth up to £1,255 a year, Prudential said.
The firm's tax expert Clare Moffat said: 'There cannot be many people who would happily give up as much as £1,255 a year and substantial numbers of higher rate taxpayers can take action now to significantly improve their pension savings.'
This year's Budget lowered the starting point for paying higher-rate tax from £42,475 to £41,451, making more DC savers eligible for the relief.
The Prudential research found around 78% of the 900,000 higher-rate taxpayers affected that pay into DC schemes make regular contributions of 10% with average salaries of £62,774. Basic 20% tax relief is worth £104 on a monthly contribution of £523 but the additional 20% for higher rate taxpayers would add another £104. Higher earners need to claim the additional relief through their annual tax return or by informing HM Revenue & Customs.
A HM Revenues & Customs spokesman told The Actuary that they wanted to ensure that anyone entitled to tax relief on pension contributions at the higher rate is aware of how to claim it. It has produced Newsletter 56 to help ensure DC pension providers ensure that savers claim the tax relief they are eligible for.