Martin Lewis quizzes Rachel Reeves on pensions
Millions of workers earning £50,000 or more are being warned they could miss out on hundreds or even thousands of pounds in pension tax relief unless they take action. As frozen tax thresholds continue to pull more people into the higher-rate and additional-rate tax bands, experts say many savers may not realise they need to claim extra relief manually.
Nearly two million more people are estimated to be paying the 40% higher-rate tax this year compared to 2022/23. Over the same period, the number of additional-rate taxpayers has increased by around 660,000. It means a rising number of people are now entitled to higher levels of pension tax relief, but many are failing to claim it.
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Millions of workers earning £50,000 or more are being warned they could be missing out (Image: Getty)
Research suggests that hundreds of thousands of higher and additional rate taxpayers miss out every year, leaving around £250million unclaimed.
On top of that, as many as a third of higher-rate taxpayers could be missing out on an additional 20% tax relief.
Gary Smith, financial planning senior partner and retirement specialist at Evelyn Partners, said: “Pension tax relief is the outstanding benefit of the UK’s private pension saving system, so it would be foolish to pass it up.
“Those who have only recently started paying higher-rate tax might be the most at risk of losing out as many will be unaware of the need to do this.”
He added that individuals who complete annual tax returns may be used to claiming relief, but millions of workers on PAYE are not registered for self-assessment.
Mr Smith continued: “Even those who are, need to make sure they use their tax returns to claw back tax relief they are owed as well as paying what they owe to HMRC.”
A simple oversight could cost savers a significant sum (Image: Getty)
Mr Smith warned that a simple oversight could cost savers a significant sum.
He said: “By not claiming back the tax relief they are entitled to on pension contributions already made, higher and additional rate taxpaying savers could be inadvertently sacrificing thousands of pounds – at a time when frozen thresholds and allowances mean that millions of taxpayers in recent years have been drawn into paying a higher rate of tax on their income.”
He added: “There’s obviously not much point paying into a pension to save on income tax and then throwing away a big part of the saving.”
Anyone paying into a “relief at source” scheme or a personal pension, such as a SIPP, contributes out of income after tax has been deducted.
Providers then automatically add the basic 20% tax relief. But Mr Smith said higher earners must claim the extra relief themselves.
He explained: “If you have paid tax on your income at the higher rate of 40% or additional rate of 45%, you will then need to proactively claim back the extra 20% or 25% in relief from HMRC.”
He also said that some workers may be confused by the terminology. “It might be that some employees are misled by the term ‘relief at source’ which could be taken as implying that all relief is taken care of at the point of contribution.
“Rather, it is in ‘net pay’ or salary sacrifice systems that relief at all levels is granted automatically.”
Employees unsure of their scheme type should check with HR or their pension provider.
Mr Smith said: “They can specifically ask their HR people or the pension provider if all their tax relief has been added to their contributions.”
Mr Smith added that all personal pension savers should assume they need to act. He explained: “All personal pension savers meanwhile, whether it is a policy with one of the big insurers, a stakeholder pension or a SIPP, can assume they need to take action to claim back higher or additional rate tax relief.”
New rules from September 1, 2025 also mean HMRC will require stronger evidence for claims.
Some workers may be confused by the terminology (Image: Getty)
Mr Smith said: “Your pension provider will have the necessary documents, which are often available online.”
Tax relief can be claimed through a tax return, the taxpayer’s online HMRC account or by writing directly to HMRC with the necessary details.
Mr Smith also reminded investors that other tax-relief opportunities can be missed.
He said: “Anyone who subscribed to Enterprise Investment Scheme or Venture Capital Trust share issues in the previous tax year, needs to remember to claim the 30% income tax relief available via their tax return.”
He added that many people do not know they can claim relief on reinvested dividends too.
Mr Smith explained: “People who opted into a VCT Dividend Reinvestment Plan are also usually able to claim further 30% tax relief on their reinvested dividends each year as these typical involve the creation of new shares which are treated as additional contributions.”