Higher Rate Taxpayers Missing Out on Pension Tax Relief

A quarter of higher rate taxpayers are missing out on pension tax relief, Prudential research has found.

An independent study, commissioned by the insurer, said this equates to about 216,000 employees collectively missing out on about £438m a year.

The nationwide study of those earning between £42,275 and £149,999 found 21% who do not contribute said they could not afford it.

One in eight (13%) said they do not see the point of saving for retirement, despite the tax benefits of pensions, while 17% simply don’t know why they fail to save into a pension scheme.

Prudential said an average higher rate taxpayer contributing £425 a month into a pension fund receives basic rate tax relief of £85 a month or £1,020 a year, directly into their pension fund. It added an additional £1,020 higher rate tax relief can also be claimed and could be used for pension saving.

Prudential tax expert Matthew Stephens said: “Pension saving offers valuable tax reliefs to all workers and particularly to higher rate taxpayers. Basic rate 20% tax relief is available at source plus up to an extra 20% from HMRC for higher rate taxpayers. Turning down what is effectively free money simply does not make sense.

“It is worrying that so many higher rate taxpayers say they cannot afford to save into a pension despite earning healthy salaries. The good news is that it is never too late to take action on saving for retirement and we urge all workers to seek advice on long-term retirement planning.”

If you need advice on how to ensure that your retirement savings benefit from the maximum possible tax savings then the financial planning specialists at Milsted Langdon can assist you with this.

Steve Horton is a Chartered Accountant and a Chartered Financial Planner who specialises in helping clients to manage their pensions and investments

Posted in News.