New analysis has uncovered a staggering financial oversight affecting hundreds of thousands of pension savers across the United Kingdom. According to recently obtained data, more than 800,000 individuals are failing to collect tax refunds that average over £1,700 each year, resulting in a collective loss exceeding £1 billion annually in unclaimed pension tax relief.
Substantial Sums Left Unclaimed by Eligible Taxpayers
Freedom of Information data secured by Steve Webb, a partner at pension consultancy LCP and former pensions minister, highlights a significant gap between entitlement and action. The research indicates that the average pension contribution declared on tax returns is £8,782. For higher rate taxpayers, this translates to an average reclaimable amount of £1,756 in tax relief.
Despite an estimated 1.1 million higher rate taxpayers being eligible for this relief during the 2023/24 tax year, only 316,000 actually submitted claims. This discrepancy leaves approximately 807,000 people missing out on money rightfully owed to them by HM Revenue and Customs.
Additional Rate Taxpayers Also Missing Out
The shortfall extends to additional rate taxpayers as well, though the gap is somewhat narrower. Among this group, 151,000 individuals claimed the relief against an expected 170,000 who were eligible, indicating that a notable number are still not accessing their full entitlements.
Expert Urges Savers to Claim What They Are Owed
Steve Webb emphasised the growing importance of this issue as fiscal drag pulls more people into higher tax brackets. "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," he stated.
He provided clear guidance for those saving into personal pensions or other 'relief at source' schemes: "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."
Webb confirmed that correctly completing this section should trigger a tax refund worth an average of over £1,700 for higher rate taxpayers and over £2,000 for those in the additional rate bracket.
Budget Uncertainty and Sector Calls for Stability
The analysis comes against a backdrop of recent pension policy uncertainty. Prior to the latest Budget, there was widespread speculation that Chancellor Rachel Reeves might reduce the tax-free portion of pension savings from the current 25% or lower the maximum allowable amount, which is presently capped at £268,275.
This speculation prompted some individuals to panic and access their tax-free cash prematurely, before any official government decisions were announced. In comments to FT Adviser, Webb argued that the pensions sector would benefit significantly if the chancellor committed to maintaining the current structure of pension tax relief for the remainder of the Parliament, providing much-needed stability for savers.
The findings serve as a crucial reminder for all pension savers, particularly those on higher incomes, to review their tax returns meticulously and ensure they are not overlooking substantial refunds that could bolster their retirement savings.
