Millions of people paying into a pension could be missing out on extra cash because they are not claiming tax relief from the Government, experts have warned.
Impact-only investment firm Path Financial – a Good With Money Good Egg firm – says this one mistake means people are missing out on thousands of pounds in their pension.
Currently, those paying 20 percent tax on their income get the relief on their pension automatically applied as they pay it into their plan. But for those on a higher rate, either 40 percent or 45 percent, only the rate at which 20 percent is applied is what they receive.
In order to get a higher rate of tax relief for the higher rates, you have to claim it from HMRC, either by completing a Self Assessment return, or by writing or phoning HMRC officials.
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Many, however, don’t do this because they either don’t know they’re eligible for extra relief or cannot be bothered to go through the process. It means millions of people are missing out on cash they need in their retirement.
75% of eligible people don’t claim tax relief
Figures released by PensionBee last year revealed an incredible 75 per cent of the UK’s top earners that are eligible to claim relief through Self Assessment failed to do so, leaving £1.3 billion of unclaimed pension tax relief to the tax man between 2016/17 and 2020/21.
Rowan Harding, a financial planner for Path Financial, says the stats from 2021 to 2024 won’t be that much different. She said: “Millions of people who are in the 40 percent or 45 percent tax bands may be missing out on vital tax relief to help them in their retirement.
“They just need to do a few simple things to make sure they are receiving all the tax relief they are entitled to. It’s relatively pain-free and shouldn’t take too long, but could be crucial when your pension pot comes around to being claimed.
“If you do choose to claim the extra tax from HMRC, you will need to add this to your pension pot yourself; it’s not added automatically. By doing so, you could be amassing much-needed extra cash before you come to take your retirement.
“Be aware, though, that any additions to your pension will be subject to the annual allowance rules.”
2 in 5 Brits off track for minimum retirement
Meanwhile, this week the Scottish Widows annual retirement survey revealed that 1.2 million extra people are off track to afford even a minimum standard of living in retirement.
The minimum standards under its definition is £14,400 a year, which is enough to cover basic needs with some left over for fun. For example, this includes being able to afford a one-week UK holiday and having £50 to spend a week on groceries or £95 as a couple. The minimum standard assumes that someone would not have a car.
The research, which used a YouGov survey of more than 5,000 people across the UK in March and April, found that more than half (54 per cent) of UK retirees expect to work longer than they would like, on average by seven years. The typical age that people said they would like retire at is 62.
Almost a third (27 per cent) said they don’t feel they will ever be able to retire, while just 34 per cent think they are currently preparing adequately for retirement.
