Higher Rate Taxpayers Miss £226 million of Tax Relief Per year

June 10, 2014

One in ten higher rate taxpayers makes no contribution at all to a pension, according to research from Prudential.- and the result is that they subsequently miss out on pension tax relief – a cool £226 million of lost opportunities in pension tax relief that goes unclaimed every year.

The survey found that the 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.

But Prudential says that a significant number of higher rate taxpayers are still passing up the opportunity to receive the state's contribution to their future retirement income.

“A career spent earning a relatively high income doesn’t guarantee a comfortable retirement, said Prudential tax specialist Clare Moffat. "It’s easy to see how pension contributions can be overlooked. But the good news is that it is never too late to take action and to start saving as much as possible. 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."

Prudential says its research also found that 59% of higher rate taxpayers who pay into defined contribution group pension schemes do claim or receive the due tax relief on pension contributions. However, a worrying 15% admit to not knowing whether or not they claim tax relief. And another 6% do not make any additional contributions to their company pension schemes, and that therefore they miss out on the state's largesse.

The survey, conducted by Consumer Intelligence in August 2013 among 302 higher-rate taxpayers, produced the following weighted results:.

Average contributions by higher rate taxpayers are 10% on average salaries of £62,774. Basic 20% 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.

Consumer Intelligence research shows that 10% of higher rate taxpayers do not contribute to any pension scheme equivalent to 90,000 people. 90,000 people multiplied by £2,510.88 a year is £226 million.