As the self-assessment tax return deadline draws near, pension experts are warning that large numbers of higher-rate taxpayers may be unknowingly paying more tax than necessary.
Millions could be missing out on valuable pension tax relief that is not paid automatically, according to pension provider Penfold.
The issue affects higher earns and people who contribute to pensions outside of salary sacrifice schemes – where someone exchanges their salary for their employer to pay into their pension – that do not realise that extra tax relief must be actively claimed.
With the 31 January deadline approaching, experts say now is a key moment to review pension contributions made during the current tax year.
We take a look at how pension tax relief works, who is affected and what higher-rate taxpayers can do before the deadline.
Millions missing out on pension tax relief
Penfold warns that many people paying higher or additional rates of income tax mistakenly believe that all pension tax relief is added automatically.
In reality, only basic-rate relief – at 20 per cent – is applied as standard for most personal pensions and many workplace schemes.
Those on higher or additional rates will have to manually claim this back themselves.
Chris Eastwood, chief executive of Penfold, explained that this misunderstanding can lead to substantial sums being left unclaimed.
He said: “We regularly see people paying higher-rate tax who assume all their pension tax relief is handled automatically.
Here are the current tax bands for the 2025/26 tax year:
Personal allowance: £0-£12,570 (0 per cent tax)
Basic rate: £12,571-£50,270 (20 per cent tax)
Higher rate: £50,271-£125,140 (40 per cent tax)
Additional rate: Over £125,140 (45 per cent tax)
“In many cases, it isn’t, and the result is money being left on the table that HMRC won’t pay back unless it’s claimed.”
HMRC figures show that nearly 7.1 million people – nearly one in five taxpayers in the UK – will pay higher-rate income tax in the current tax year. That’s up 38.7 per cent in three years, from 5.1 million in the 2022/23 tax year.
These increases are largely because income tax thresholds have been frozen since April 2021 and are expected to remain unchanged until at least 2028.
About 1.23 million will pay the additional rate, the data shows.
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Penfold estimates that a significant proportion of these savers may be eligible for further pension tax relief, particularly those contributing to personal pensions or workplace schemes using the relief at source system.
What pension tax relief means in practice
Pension tax relief is designed to encourage saving for retirement by refunding income tax on pension contributions.
For most personal pensions, providers automatically add basic-rate relief of 20 per cent.
But higher-rate taxpayers are entitled to claim back the difference between their marginal tax rate and the basic rate.
This means an extra 20 per cent for higher-rate taxpayers and an extra 25 per cent for additional-rate taxpayers.
Eastwood highlighted the scale of the benefit, adding: “For someone paying 40 per cent income tax, a £10,000 pension contribution could cost as little as £6,000 once all tax relief is claimed.”
Pension contributions reduce the effective cost of saving by returning tax that would otherwise be lost, significantly boosting retirement savings over time.
He continued: “If you don’t claim the extra relief you’re entitled to, you simply pay more tax than you need to.”
Who is most likely to be affected
According to Penfold, higher-rate pension tax relief is most often missed by people who earn above the basic-rate threshold and pay into pensions using relief at source arrangements. This includes many personal pensions and some workplace schemes.
Employees paying into pensions through salary sacrifice or net pay arrangements – where your contributions are taken from your pay before your wages are taxed – usually receive full tax relief automatically, as contributions are deducted before income tax is applied. For others, claiming additional relief requires action.
The key is understanding how your pension scheme works, Eastwood said. His point underlines that different pension structures are taxed in different ways, and savers cannot assume the system works the same for everyone.
If you don’t know whether your pension uses relief at source, it’s worth checking, especially before the January deadline, he urged.
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Why January matters
While the 31 January self-assessment deadline does not require people to make new pension contributions, it is the cut-off for reporting income and claiming relief for the previous tax year.
Eastwood said: “January is an important moment to review contributions made during the tax year and ensure any higher-rate relief is correctly claimed.
“Claiming pension tax relief isn’t about gaming the system. It’s about making sure people receive the tax benefit Parliament intended – and not paying more tax than they need to.”
How to claim higher-rate pension tax relief
The self-assessment deadline is 31 January. You may need to claim pension tax relief if you pay higher or additional-rate income tax and contribute to a pension that uses relief at source. If you already complete a self-assessment tax return, pension contributions can usually be entered in the pensions section of the form. If you do not normally file a tax return, you may still be able to claim through HMRC’s online service or by contacting HMRC directly. You will need details of your pension contributions and your pension provider. Employees in salary sacrifice or net pay pension schemes usually do not need to claim, as full tax relief is applied automatically. Failing to claim means the extra relief is not refunded, and HMRC will not apply it unless you take action.Hence then, the article about pension tax relief worth thousands of pounds could be lost by millions of people was published today ( ) and is available on inews ( Middle East ) The editorial team at PressBee has edited and verified it, and it may have been modified, fully republished, or quoted. You can read and follow the updates of this news or article from its original source.
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