One in four higher rate taxpayers don’t contribute to pension schemes despite the attraction of tax relief to help boost their retirement savings, according to independent research from Prudential.
This equates to around 216,000 employees missing out on up to £438 million a year in pension tax relief across the country.
The study of those earning between £42,275 and £149,999 found 21% claiming they cannot afford to contribute to a pension scheme. 13% say they do not see the point of saving for retirement, despite the tax benefits of pensions, while 17% don’t know why they fail to save into a pension scheme.
An average higher rate taxpayer contributing £425 a month into a pension fund receives basic rate tax relief of £85 a month or £1,020 a year, directly into their pension fund. Up to an additional £1,020 a year in higher rate tax relief can be claimed, which could also be used for pension saving.
Figures from HMRC show that around 58% of the estimated 900,000 higher rate taxpayers in the UK contribute to defined contribution pension schemes, while another 15% are members of either non-contributory or defined benefit schemes.
But despite earning average salaries of £58,541, Prudential found that the rest do not save into pension schemes at all. Around 43% of those who don’t save into a pension scheme claim to have made alternative retirement arrangements, 4% have existing Self-Invested Personal Pension schemes and another 2% claim they will not retire.
“Pension saving offers valuable tax reliefs to all workers and particularly to higher rate taxpayers,” said Matthew Stephens, Prudential’s tax spokesperson.
“Basic rate 20% tax relief is available at source plus up to an extra 20% from HMRC for higher rate taxpayers. Turning down what is effectively free money simply does not make sense.
“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.”
