More than £1billion in pension tax relief goes unclaimed each year..
800,000 pension savers failing to collect £1,756 refund
800,000 pension savers across Britain are failing to collect tax refunds averaging more than £1,700 each year, it has emerged. Freedom of Information data obtained by Steve Webb, a partner at pension consultants LCP, shows that more than £1billion in pension tax relief goes unclaimed each year..
The former Liberal Democrats and Conservative Party coalition government pensions minister found the average pension contribution declared on tax returns stands at £8,782, meaning higher rate taxpayers can reclaim £1,756 on average.
Only 316,000 higher rate taxpayers actually claimed this relief in 2023/24, despite an estimated 1.1 million being eligible. This leaves roughly 807,000 people failing to collect money owed to them.
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Among additional rate taxpayers, the gap is smaller but still notable, with 151,000 claiming against an expected 170,000.
Mr Webb said: “With more and more people being dragged into higher rates of income tax, it is increasingly important that they claim all the tax relief to which they are entitled.
“Anyone saving into a personal pension or other ‘relief at source’ scheme can get higher rate relief but only if they claim it.
“When filling in your tax return it is vital not to ignore the box for personal pension contributions but to enter the gross amount that went in to your pension.
“This should trigger a tax refund worth an average of over £1,700 for higher rate taxpayers and over £2,000 for additional rate taxpayers.”
Prior to the Budget, there had been widespread speculation that Rachel Reeves might cut the tax-free portion of pension savings from the current 25% or lower the maximum allowable amount, presently capped at £268,275.
This uncertainty caused some individuals to panic and access their tax-free cash before any official decisions were announced.
Webb told FT Adviser that the pensions sector would greatly benefit if the chancellor pledged to maintain pension tax relief for the remainder of this Parliament.