Some high net worth (HNW) individuals are failing to claim their 40-50% pensions tax relief because they do not know they must claim it themselves.
Several tax advisers told the Financial Times that, as high earners are switched from final salary pensions to group personal pensions, they are failing to understand the different ways tax relief is credited. In final salary schemes, employee contributions are automatically deducted from gross pay and tax is only paid on what is left. Effectively, tax relief is received automatically.
However, in group personal pensions, only the basic 20% tax relief is credited, and employees must claim higher rate relief through their PAYE codes or on their self-assessment tax returns.
There have been many cases where employees have not been made aware of the change to how tax relief is accounted for, and so have been overpaying substantial sums in tax.
