Analysis by leading online pension provider, PensionBee, has found that over 1.5 million of the nation’s highest earners failed to claim an estimated £810m in tax relief in the 2018/19 financial year, totalling around £2.5bn between 2016/17 and 2018/19.
Over the three year period PensionBee found that an average of 80% of higher rate taxpayers eligible to claim relief through their Self-Assessment tax returns failed to do so, while an estimated 53% of additional rate taxpayers inadvertently left tens of millions of pounds to the Chancellor.
Figures obtained via freedom of information requests to HMRC show that the number of taxpayers neglecting to claim beyond the basic rate of tax relief has remained consistent at around 1 million between 2016/17 and 2018/19 for higher rate taxpayers, while reducing from its three year peak of 72,262 in 2017/18 to 58,690 in 2018/19 for additional rate taxpayers.
For higher rate taxpayers in 2018/19 alone this equated to an estimated £756.2 million in unclaimed tax relief on personal pensions, slightly down from £769.4 million in 2017/18. In the case of additional rate taxpayers, an estimated £54.6 million went unclaimed in 2018/19, compared to £60.5 million in 2017/18. Between 2016/17 and 2018/19 higher rate taxpayers failed to claim a total of £2.3 billion while additional rate taxpayers overlooked a total of £164.7 million over the same three year period.
In order to claim tax relief on their pension contributions, eligible higher rate and additional rate taxpayers would need to complete a Self-Assessment, even though they are employed and usually handle their tax matters exclusively via payroll (PAYE).
In comparison most eligible basic rate taxpayers fall under the relief at source system for personal pensions, which had 9.4 million consumers in 2018/19, and requires pension providers to claim basic rate tax relief of 20% on behalf of their customers and put it in their pensions. For example, if a basic rate taxpayer pays £100 into their pension, the provider would claim £25 from HMRC and put it in the customer’s pension, bringing the total contribution to £125.
Romi Savova, CEO of PensionBee, commented: “Tax relief is a vital incentive that encourages people to save efficiently towards their retirement and too many people continue to miss out on this crucial benefit.
Research shows that consumers on lower incomes, and particularly women, do not receive any of the tax benefits that come with pension saving, because they are currently under the basic rate threshold. While at the other end of the spectrum, today’s analysis shows that millions of high earners are also missing out by not completing their Self-Assessment.
The dual system is too complex and radical reform is long overdue. We’re calling on the Chancellor to scrap differential rates of tax relief, which are incredibly costly and complicated to understand, in favour of a system that truly rewards everyone for putting money away for their retirement. A universal rate of 25% will level the pensions playing field and put a stop to consumers across all tax brackets missing out.”
Appendix
Table 1: Percentage of eligible taxpayers with unclaimed tax relief
| Income tax bracket | 2016/17 | 2017/18 | 2018/19 | Average |
|---|---|---|---|---|
| Higher rate | 80% | 81% | 80% | 80% |
| Additional rate | 52% | 57% | 49% | 53% |
Source: Gov.uk. Calculations are based on statistics from the Personal Pensions September 2019 National Statistics report which highlights that 9.4 million individuals contributed to a personal pension scheme in 2016/17 and 10.4 million individuals in 2017/18. The UK Income Tax Liabilities Statistics June 2019 Report highlights that 4.4 million individuals (14.1%) were higher rate taxpayers in 2016/17 and estimates 4.2 million individuals (13.5%) will be higher rate taxpayers in 2017/18. It also highlights that 356,000 (1.1%) were additional rate taxpayers in 2016/17 and estimates 380,000 (1.2%) will be additional rate taxpayers in 2017/18. Commentary for Personal and Stakeholder Pension Statistics: September 2021 highlights that 9.4 million individuals contributed to a personal pension scheme in 2018/19, while Income Tax liabilities statistics: tax year 2018 to 2019 to tax year 2021 to 2022 highlights that there were 31.6 million income tax payers in 2018/ 2019. 4.2 million individuals (13.4%) were higher rate taxpayers in 2018/19 and 399,000 (1.3%) were additional rate taxpayers in 2018/19. We have only considered personal pensions that use the relief at source method and have explicitly excluded net pay schemes. Numbers have been rounded.
Table 2: Number of eligible taxpayers with unclaimed tax relief
| Income tax bracket | 2016/17 | 2017/18 | 2018/19 |
|---|---|---|---|
| Higher rate | 1,062,654 | 1,139,850 | 1,008,291 |
| Additional rate | 55,256 | 72,262 | 58,690 |
Source: Gov.uk. Calculations are based on statistics from the Personal Pensions September 2019 National Statistics report which highlights that 9.4 million individuals contributed to a personal pension scheme in 2016/17 and 10.4 million individuals in 2017/18. The UK Income Tax Liabilities Statistics June 2019 Report highlights that 4.4 million individuals (14.1%) were higher rate taxpayers in 2016/17 and estimates 4.2 million individuals (13.5%) will be higher rate taxpayers in 2017/18. It also highlights that 356,000 (1.1%) were additional rate taxpayers in 2016/17 and estimates 380,000 (1.2%) will be additional rate taxpayers in 2017/18. Commentary for Personal and Stakeholder Pension Statistics: September 2021 highlights that 9.4 million individuals contributed to a personal pension scheme in 2018/19, while Income Tax liabilities statistics: tax year 2018 to 2019 to tax year 2021 to 2022 highlights that there were 31.6 million income tax payers in 2018/ 2019. 4.2 million individuals (13.4%) were higher rate taxpayers in 2018/19 and 399,000 (1.3%) were additional rate taxpayers in 2018/19. We have only considered personal pensions that use the relief at source method and have explicitly excluded net pay schemes. Numbers have been rounded.
Table 3: Value of unclaimed tax relief
| Income tax bracket | 2016/17 | 2017/18 | 2018/19 | Combined total |
|---|---|---|---|---|
| Higher rate | £770.4 million | £769.4 million | £756.2 million | £2.3 billion |
| Additional rate | £49.6 million | £60.5 million | £54.5 million | £164.7 million |
| Annual total | £820 million | £829.9 million | £810.7 million | £2.5 billion |
Source: Gov.uk. Calculations are based on statistics from the Personal Pensions September 2019 National Statistics report which highlights that average annual personal pension contributions per individual totalled £2,900 in 2016/17 and £2,700 in 2017/18, likely an underestimate for higher and additional rate taxpayers. Commentary for Personal and Stakeholder Pension Statistics: September 2021 highlights that the average annual personal pension contributions per individual totalled £3,000 in 2018/19. The number of eligible higher and additional rate claimants assumes a uniform distribution of pension membership among taxpayers; i.e. 13.4% of all taxpayers in 2018/19 were higher rate taxpayers and therefore 13.4% of all pension owners were higher rate taxpayers. There are some considerations around this assumption, as higher and additional rate taxpayers are more likely to have personal pensions, although they are also more likely to have remained in defined benefit schemes or opted out after having exceeded the lifetime allowance. Higher and additional rate taxpayers are also more likely to be members of salary sacrifice schemes, meaning there may be a lower proportion making personal pension contributions. Calculations take into account that higher and additional rate taxpayers can claim a further 25% and 31% through their Self-Assessment respectively, based on tax rates in England, Wales and Northern Ireland. We have only considered personal pensions that use the relief at source method and have explicitly excluded net pay schemes. Numbers have been rounded.
Table 4: Data sources and calculations
| 2016/17 | 2017/18 | 2018/19 | Source | |
|---|---|---|---|---|
| Total number of people in personal pensions |
9,400,000 | 10,400,000 | 9,400,000 | (1) (2) |
| Total taxpayers | 31,200,000 | 31,300,000 | 31,600,000 | (3) (4) |
| Higher rate taxpayers |
4,410,000 | 4,210,000 | 4,230,000 | (5) (6) |
| Additional rate taxpayers |
356,000 | 380,000 | 399,000 | (7) (8) |
| Proportion of higher rate taxpayers |
14.1% | 13.5% | 13.4% | Calculation |
| Proportion of additional rate taxpayers |
1.1% | 1.2% | 1.3% | Calculation |
| Average annual contributions per individual |
£2,900 | £2,700 | £3,000 | (9) (10) |
| Eligible higher rate claimers |
1,328,654 | 1,328,654 | 1,258,291 | (11) |
| Eligible additional rate claimers |
107,256 | 126,262 | 118,690 | (12) |
| Higher rate claimants |
266,000 | 259,000 | 250,000 | (13) |
| Additional rate claimants |
52,000 | 54,000 | 60,000 | (14) |
| Proportion higher rate not claiming |
80% | 81% | 80% | Calculation |
| Proportion additional rate not claiming |
52% | 57% | 49% | Calculation |
| Additional higher rate tax |
25% | 25% | 25% | Tax rules |
| Additional additional rate tax |
31% | 31% | 31% | Tax rules |
| Higher rate tax unclaimed (£) |
£770,424,038 | £769,398,642 | £756,218,354 | Calculation |
| Additional rate tax unclaimed (£) |
£49,675,513 | £60,483,278 | £54,581,582 | Calculation |
| Total | £820,099,551 | £829,881,920 | £810,799,937 | Calculation |
Footnotes
- HM Revenue & Customs
- Gov.uk
- HM Revenue & Customs
- Gov.uk
- HM Revenue & Customs
- Gov.uk
- HM Revenue & Customs
- Gov.uk
- HM Revnue & Customs
- Gov.uk
- Calculation, assuming a uniform distribution of pension membership among taxpayers; i.e. 13.4% of all taxpayers are higher rate taxpayers and therefore 13.4% of all pension owners are higher rate taxpayers. Likely an underestimate, as higher rate taxpayers are more likely to have pensions.
- As above
- HMRC, obtained under two freedom of information requests (January 2020 and July 2021). Number of higher rate and additional rate taxpayers who claimed tax relief on pension contributions made to relief at source pensions via Self-Assessment. Numbers have been rounded to the nearest 1,000.
- HMRC, obtained under two freedom of information requests (January 2020 and July 2021). Number of higher rate and additional rate taxpayers who claimed tax relief on pension contributions made to relief at source pensions via Self-Assessment. Numbers have been rounded to the nearest 1,000.
