A new survey suggests that one in 10 higher earners fail to make a personal contribution to a pension and on average higher rate taxpayers miss out on £2,500 a year in tax relief each – equivalent to £225m a year for all higher earners.
According to research from Prudential, an IFP Corporate Member, an average higher rate taxpayer earns nearly £63,000 a year. Those surveyed who make additional personal contributions to a defined contribution company pension scheme contribute on average £523 a month gross, receiving tax relief of just over £200 a month or over £2,500 a year directly into their pension fund.
Research shows average contributions by higher rate taxpayers are 10% on average salaries of £62,774. Basic 20 per cent tax relief is worth £104.62 on a monthly contribution of £523.12 and the additional 20% for higher rate taxpayers would add another £104.62 equivalent to £209.24 a month or £2,510.88 a year.
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.
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"A career spent earning a relatively high income doesn't guarantee a comfortable retirement. It's easy to see how pension contributions can be overlooked.The changes to pensions and how people can take their retirement income announced in the Budget in March will provide savers and retirees with more choices – making it even more important to take advice from a financial adviser or a retirement specialist.
"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."
Prudential's research also found that nearly six in 10 (59 per cent) higher rate taxpayers paying into defined contribution group pension schemes do claim or receive the additional tax relief on pension contributions they are due. However, 15 per cent admit to not knowing whether or not they do claim tax relief. The research also found that another six per cent do not make any additional contributions to their company pension scheme and therefore miss out on valuable tax relief.
Research was conducted by Consumer Intelligence (consumerintelligence.com) in August 2013 among 302 higher-rate taxpayers.