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The Difference Between The Best And Worst Pension Incomes Can Be Very Surprising

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Higher rate taxpayers lose out on £2,040 annually in tax relief by paying into a pension

One in four higher rate taxpayers do not pay into pension schemes, resulting in them missing out on annual average tax relief figure of £2,040.

The figures from research conducted by Prudential reveal that higher rate taxpayers are failing to capitalise on the basic rate tax relief of £85 a month (£1,020 a year) that they could achieve on a pension contribution of £425 a month. This figure can also be bumped up by a further £1,020 a year by claiming for higher rate tax relief.

216,000 employees are missing out on up to £438 million a year that could act to boost retirement pots, according to Prudential’s estimates.
Higher rate taxpayers typically have salaries in the range of £42,275 and £149,999, with an average figure of £58,541.

Just over a fifth (21%) of survey respondents said they hadn’t contributed to a pension scheme because they could not afford it. A further 13% argued that they couldn’t see the point of saving for retirement, while 17% were unaware of the reasons as to why they failed to invest in a pension scheme.

According to figures from HMRC, 58% of the estimated 900,000 higher rate taxpayers contribute to defined contribution pension schemes. A further 15% are members of either defined benefit or non-contributory schemes. The remaining 27% don’t save into a pension at all.

Commenting on the figures, Matthew Stephens, Prudential's tax expert, said: “Pension saving offers valuable tax reliefs to all workers and particularly to higher rate taxpayers. Basic rate 20 per cent tax relief is available at source plus up to an extra 20 per cent 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.”

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