Marvin OnumonuMore than 100,000 earners could be missing out on over £255,000 in pension tax relief, according to new research from Rathbones.
The report found that workers earning between £100,000 and £125,140 lose an extra 40% tax relief if they do not reclaim through their self-assessment tax return.
Missing this can cost £5,000 in a year, £89,666 over 10 years and as much as £255,358 over 20 years if the relief is not reinvested and pension contributions rise by 2% each year with 5% annual growth.
If investment returns were higher, at 7% net, the lost pension wealth would increase to £100,066 over 10 years and £318,825 over 20 years.
Higher rate taxpayers who reclaim the extra relief could see their pension pot boosted by £2,500 in a year, £44,833 over 10 years and £127,679 over 20 years.
For additional rate taxpayers, the boost could be £3,125 in a year, rising to £56,041 over 10 years and £159,599 over 20 years.
Ed Wood, senior financial planner at Rathbones, said: “Earning just above £100,000 puts people in one of the most punitive tax positions in the UK – but it also creates an opportunity.
“By giving up a small slice of heavily taxed income, individuals can not only stay eligible for important childcare support but also supercharge their retirement savings.
“The numbers speak for themselves – a modest sacrifice today can snowball into a sizeable sum tomorrow thanks to investment growth and compounding.”
Wood added: “While earnings and income thresholds may shift over time, the principle remains unchanged: a penny saved today can compound into a pretty penny tomorrow.”
Wood said anyone who has not claimed pension tax relief in previous years could back-claim for up to four tax years.
For someone in the 60% band, this could mean a refund of around £20,000.
He said: “HMRC has also streamlined the process, making it easier to recover what you’re owed.
“It’s also worth remembering that the same principle applies to Gift Aid. Even if you haven’t made large charitable donations, you may have sponsored friends, colleagues or family members over the years.
“If the Gift Aid box was ticked, higher rate and additional rate taxpayers can reclaim extra relief on those contributions too.”
He added: “Many fundraising platforms keep a record of past donations, which can be invaluable when working out what you’re entitled to. It’s a simple step that can make a meaningful difference to your finances.
“With the self-assessment deadline approaching, now is the time to review whether you’ve claimed everything you’re entitled to.”
