Could you be missing out on unclaimed pension tax relief?

January 15, 2024

According to recent research, over a five-year period around £1.3 billion pension tax relief has been left unclaimed by higher rate and additional rate tax-paying pension savers. Could you be one of those savers who is missing out on cash in your pocket?

What is pension tax relief?

Pension tax relief is a government incentive to encourage people to save for retirement. Depending on your income level, the type of pension scheme you have and the amount which is being contributed, it boosts your pension contributions either through relief at source or net pay.

Depending on your tax bracket, you may be eligible for 20%, 40% or even 45% tax relief on your pension contributions, so understanding how pension tax relief works is important to make sure you’re claiming everything that you’re entitled to. Seeking advice from an experienced IFA could help you to significantly enhance your retirement savings.

Why is so much pension tax relief unclaimed?

The main reason for the staggering figure of £1.3 billion in unclaimed tax relief is that higher and additional rate taxpayers often need to claim it manually. If you’re in a ‘net pay’ arrangement, you’ll automatically be receiving it because your pension contribution is deducted from your salary before tax is applied, so you’re getting the benefit upfront.

If you’re on a ‘relief at source’ arrangement, however, such as a personal pension plan (or some workplace pension plans) your pension payment is deducted from your salary after tax. In this case, your pension provider will add basic rate tax relief (20%) to your payment and claim it back from the government.

However, if you’re a higher or additional rate taxpayer, you need to claim any further tax relief directly from the government yourself.

This is the reason for the unclaimed tax relief, as many people simply don’t realise that they need to claim an additional 20% or 25% relief on top of the basic relief themselves.

How do I claim back this extra tax relief? 

It’s actually relatively straightforward once you’ve determined whether you need to claim manually.

If you’re a higher rate or additional rate taxpayer, the first step is to understand your pension arrangement. If you’re on a ‘net pay’ arrangement you don’t need to do anything, as you will automatically be getting the tax relief that you’re eligible for.

However, if you’re on ‘relief at source’, here are the steps to follow:

1. Complete a self-assessment tax return
2. Be aware of deadlines – the deadline for completing your self-assessment tax return is 31 January if you do it online, but 31 October if you choose to submit a paper return.
3. Receive your tax relief – once you have claimed the tax relief, you will either receive it as a rebate at the end of the year, or through an adjustment to your tax code (this will depend on your specific circumstances).

If you’re concerned that you might be missing out on valuable pension tax relief, or would like some help to understand your pension arrangements, Talis IFAs are here to guide you.

If you’d like our help to get a clearer picture of your financial situation and develop a plan for your retirement, find a Talis IFA here.