A quarter of higher rate taxpayers fail to use pension tax relief

One in four higher rate tax payers say they do not contribute to a pension scheme, despite the tax reliefs available, research from Prudential has found.

The national study said this equated to around 216,000 UK employees who are missing out on up to £438 million a year in pension tax reliefs and a boost to their retirement savings.

Questioning those earning between £42,275 and £149,999, 21 per cent said they could not afford to contribute to a pension scheme, while one in eight (13 per cent) said they 'did not see the point' in saving for retirement.

A larger number (17 per cent) said they did not know why they had not contributed into a pension a scheme.

Prudential estimates that an average higher rate tax payer - those paying income tax at 40 per cent- who contributes £425 a month into a pension fund would receive a tax relief of £85 a month, equating to £1,020 a year. An additional £1,020 a year in higher rate tax relief could also be claimed.

Prudential's tax expert Matthew Stephens said that 'turning down what is effectively free money simply does not make sense'.

"Pension saving offers valuable tax reliefs to all workers and particularly to higher rate taxpayers. Basic rate 20 per cent tax relief is available at source plus up to an extra 20 per cent from HMRC for higher rate taxpayers," he said.

According to Prudential, around 58 per cent of the estimated 900,000 higher rate taxpayers in the UK contribute to defined contribution pension schemes, with a further 15 per cent being members of either non-contributory or defined benefit schemes.

Last year, the Treasury gave £32.9 billion worth of tax reliefs to those saving into registered pension schemes.

Currently, the maximum amount of contributions that can qualify for tax relief is £50,000, after being reduced from £255,000 at the start of the 2011/12 tax year.

Matthew concluded: "It is worrying that so many higher rate taxpayers say they cannot afford to save into a pension despite earning healthy salaries. The good news is that it is never too late to take action on saving for retirement and we urge all workers to seek advice on long-term retirement planning."

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