Hundreds of thousands of pension savers paying the 40 per cent or 45 per cent tax rate are failing to reclaim money they are owed from HM Revenue and Customs (HMRC), with research indicating the annual shortfall amounts to roughly £250million.
The problem has grown significantly more pressing as frozen tax thresholds have dragged increasing numbers of workers into higher tax brackets. Compared to the 2022/23 tax year, an estimated two million additional people now find themselves paying the higher rate of income tax.
The ranks of additional rate taxpayers have similarly swelled by approximately 660,000 over the same period. Studies suggest that up to a third of those paying the 40 per cent rate could be leaving an extra 20 per cent pension tax relief unclaimed each year.
Gary Smith, the financial planning senior Partner and retirement specialist at wealth management firm Evelyn Partners, warns that those who have recently crossed into the higher tax bracket face the greatest risk of missing out.
Are you missing out on pension tax relief?
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“Pension tax relief is the outstanding benefit of the UK’s private pension saving system, so it would be foolish to pass it up,” he said.
“Those who have only recently started paying higher-rate tax might be the most at risk of losing out as many will be unaware of the need to do this.”
Mr Smith notes that by neglecting to reclaim their entitlement, savers could be “inadvertently sacrificing thousands of pounds at a time when frozen thresholds and allowances mean that millions of taxpayers in recent years have been drawn into paying a higher rate of tax on their income”.
The mechanics of pension tax relief can catch out even diligent savers. Those contributing to “relief at source” schemes or personal pensions such as Self-Invested Personal Pensions (SIPP) pay from their net income after tax has already been deducted.
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Pension providers automatically add the basic 20 per cent tax relief to these contributions. However, individuals taxed at the 40 per cent higher rate or 45 per cent additional rate must take action themselves to recover the remaining 20 per cent or 25 per cent they are entitled to.
Mr Smith points out that the term “relief at source” may mislead some employees into believing all their tax relief is handled automatically at the point of contribution.
“Rather, it is in ‘net pay’ or salary sacrifice systems that relief at all levels is granted automatically,” he explained.
Workers uncertain about their pension arrangements should first establish what type of scheme their employer operates.
Mr Smith advises contacting HR departments or pension providers directly to confirm whether all tax relief has been applied to contributions.
Those with personal pensions, whether through major insurers, stakeholder schemes, or SIPPs, should assume they need to act to recover higher or additional rate relief.
Since September 1, 2025, HMRC has tightened its requirements, now demanding evidence for all claims regardless of contribution size.
Previously, only those contributing more than £10,000 needed to provide documentation. Pension providers typically hold the necessary paperwork, often accessible online.
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GETTYSavers can reclaim through their tax return, via the HMRC online gateway, or by writing directly to the tax authority with full details of their contributions and scheme.
Mr Smith shared: “‘It isn’t just tax relief on pension contributions that might need to be claimed, especially if you are a sophisticated or tax-efficient investor.
“Anyone who subscribed to Enterprise Investment Scheme or Venture Capital Trust share issues in the previous tax year, needs to remember to claim the 30 per cent income tax relief available via their tax return.
“While most will be aware of the need to do this, perhaps less understood is that people who opted into a VCT Dividend Reinvestment Plan, are also usually able to claim further 30 per cent tax relief on their reinvested dividends each year as these typical involve the creation of new shares which are treated as additional contributions.”