Britons could “lose out” on a financial boost worth £122,000 to their pension wealth by not claiming tax relief.
Pension tax relief allows taxpayers to receive income back on their retirement contributions which is essentially “free money”, experts claim.
As such, it only costs basic-rate taxpayers £80 to put £100 into their pension pot, while higher-rate taxpayers will get £100 if they place £60 into their savings.
However, a new survey carried out by interactive investor found that only a third of higher-rate taxpayers who save into a private pension are claiming this tax relief.
Many taxpayers are unaware of the benefits provided by pension tax relief
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A higher-rate taxpayer who is paying £5,000 annually into a private retirement pot may “lose out” on £1,250 each year by not claiming tax relief.
An individual contributing £10,000 into a private pension each year could be missing out on £2,500 a year in tax relief, the firm warned.
Furthermore, failing to claim pension tax relief could potentially reduce someone’s retirement wealth long-term.
For savers contributing £10,000 a year, they could bolster their pension by up to £122,000 over 20 years by claiming a rebate and adding it to their pension, assuming five per cent investment growth.
Alice Guy, head of pension and savings at interactive investor, described tax relief as being “the jewel in the crown of the UK pension system” but warned some people may be unaware of its benefits.
She said: “Many people assume they automatically get all the pension tax relief they’re entitled to, but for higher-rate taxpayers, that’s simply not the case.
“Ultimately, this is free money, and not claiming additional tax relief you’re entitled to means you could lose out on thousands of extra income each year.”
People need to claim tax relief on pension contributions themselves if they pay income tax at a rate above 20 per cent and if their pension provider claims the first 20 per cent for them.
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GETTYFurthermore, taxpayers will need to put forward a claim if their pension scheme is not set up for automatic relief or if someone else pays into the pot.
Ms Guy also highlighted what may need to be done for higher-rate taxpayers to secure their £122,000 hike to their pensions.
The pension expert explained: “If you don’t complete a tax return then you can write to HMRC to provide details of any private pension contributions during the year.
“Higher-rate taxpayers who contribute to a relief at source workplace pension scheme will also need to claim the additional tax relief on their pension payments as it won’t be given automatically.
“You can also claim back missing tax relief for the previous three tax years as well as the current tax year.”
