With the deadline for self-assessment looming (11:59pm on 31 January), many people will be gearing up to hand money to the taxman. However, for others it’s time to give their pensions a boost as they reclaim unpaid tax relief on their pension contributions.
But the topic of pension tax relief can be confusing at the best of times, and many people risk missing out on thousands of pounds that could be going into their pension and building their long-term resilience. Data shows that an estimated £1.3bn worth of tax relief went unclaimed between 2017 and 2022.
Pension and tax rules can change, and benefits depend on your circumstances. You can normally access the money in a pension from age 55 (rising to 57 in 2028). This information isn’t personal advice. If you’re not sure what’s right for you, seek financial advice.
How much pension tax relief should I receive?
Pension tax relief is set at your marginal rate of income tax, so if you pay basic rate tax you get 20% relief on your pension contribution. This means that for every £100 contributed to your pension, only £80 leaves your pocket. And if you’re a higher or additional rate taxpayer, the same contribution would only cost you £60 or £55, respectively. Scotland has further tax bands that could see you getting higher rates of tax relief.
If you’re a basic rate taxpayer then you should receive the appropriate tax relief on your contributions automatically, but if you pay tax at a higher rate, there’s a chance you could be missing out without realising it. It all depends on what type of pension you contribute to.
Salary sacrifice vs relief at source
If you’re in a salary sacrifice arrangement or what’s known as a net pay arrangement, then you should get the right amount of tax relief automatically. Under net pay your pension contribution is deducted from your salary before income tax is paid. This means you only pay tax on what is left so will get full tax relief.
However, if you contribute to what’s known as a ‘relief at source’ arrangement, then things work differently, with contributions deducted from your salary after tax.
Under the basic rate, your employer takes 80% of the contribution from your salary and then reclaims the extra 20% from HMRC. But if you pay a higher rate of tax, it’s your responsibility to claim it. Read our guide to claiming back higher rate of tax relief for more information.
Many private pensions, like a Self-Invested Personal Pension (SIPP), as well as some workplace pensions, are set up as relief at source, so it’s worth checking with your provider or HR department if you’re unsure.
I pay a higher rate of tax - how do I make my tax relief claim?
The appropriate section on your self-assessment form will be the one labelled tax reliefs, and you can backdate claims for up to four years. If you don’t fill out self-assessment forms you can claim the relief online through the gov.uk website or via post.
Keep hold of your old pension statements for when you’re filling out your forms. You can use them as proof of when you made contributions and how much you paid.
You’ll have the option to receive your rebate via cheque or directly into your bank account. You can then reinvest this money into your pension to boost your retirement If you’re looking for a more flexible, tax-efficient way to save for retirement, you could try the HL SIPP. With it, you can control exactly how your money is invested, and everything’s managed inside our easy-to-use app.