News
Claiming what's yours on pension contributions. - 06.02.12
Missing out on Pension Contributions' Tax Relief?
Never have so many people been so preoccupied – and seriously worried – about protecting their pensions to ensure at least a comfortable and carefree retirement. But, ironically, while there is a focus on investing upfront, many are missing out by not claiming back along the way what's theirs by right from the taxman. What's worse, it may often be a case of not being aware of what can be claimed.
Failure to claim full higher rate tax relief on contributions means workers paying more tax. It's a situation which is catching an increasing number of people since more are now included in the 40% tax bracket following the Government's change in thresholds last year.
With an estimate of several hundred thousand workers affected, it has been calculated to cost workers around £850 million a year, with individuals failing to claim up to £3,000 annually.
Most workplace savings schemes are now Group Personal Pension or Stakeholder – but the basic rate tax relief is all employees automatically get within these schemes. An additional 20% or 30% relief can be reclaimed, depending on the individual's tax rate.
Only a very small percentage of higher rate tax payers actually do this. Employers do not reclaim it back for their workers. HM Revenue & Customs does not automatically give it and simply keeps the money.
By necessity in these hard times, more people are belatedly paying attention to the detail and complexities of pension provision and seeking advice. Many discover that they've been failing to claim what they are entitled to.
If your annual earnings are over £42,475, you are entitled to an additional 20% relief. For those with income above £150,000, the additional relief is even greater at 30%, but you need to make a claim.
If an accountant does the tax return, they need all the relevant information. If the return is done by self assessment, it is essential that the taxpayer is fully aware of allowances and claims accordingly. A premium history for the tax year in question will do the trick, and then it is likely that HMRC will alter the tax code of the individual going forward to take account
There is good news for some - if the employer's pension scheme is on salary exchange basis, then there is no need to do anything else, as the relief is effectively given automatically, and in some other occupational schemes, this is also the case.
For those getting round to sorting out their pensions and tax matters, there is also some good news – claims can be backdated for up to four years. It's your money, due to you, so go and get it!
A version of this article by Alan Fergusson, Director – Employee Benefits at Kudos Financial Services appeared in The Press and Journal "Money" feature on 6 February 2012