£2.5bn of income tax relief on pension contributions remains unused

The latest figures from unbiased.co.uk's Tax Action report reveal that 4 million Brits who are currently not paying into a pension but say they are likely to consider doing so, are currently leaving £2.5bn of income tax relief on pension contributions unused.

The latest HMRC figures reveal the average pension contribution made by individuals per year is £3,010.  Research shows that employees could be boosting their pension pot by as much as £602 each and £2.5bn collectively by taking advantage of tax relief on pension contributions, and this is just for basic rate payers.  Anyone paying towards a pension receives tax relief on their pension savings at 20% and up to 40% or 50% as appropriate.  Higher rate taxpayers could benefit from saving into a pension potentially adding up to £1,204 in tax relief.

Under current rules when you pay money into a pension, the government effectively adds an extra 20% of the total contribution.  In practice, this means that for every £100 you want to save, you only need to contribute £80 of your own money (and £60 for a higher rate tax payer and £50 for an additional rate tax payer respectively). 

Karen Barrett, Chief Executive of unbiased.co.uk, comments:  "Saving into a pension can be one of the most tax efficient methods of saving for retirement, however people rarely think about the tax benefits.  Tax relief on pension contributions is free money available to you, helping you to boost your retirement pot. 

"The effect of tax relief on pension payments over time can be considerable but proactivity is vital to ensure consumers are making the most of these tax-efficient saving vehicles.  This is even more important if you are a higher rate taxpayer where the onus is on you to claim back the additional tax relief owed to you.  So don't sit back and wait until the government's pension enrolment scheme comes into force before taking tax action, the sooner you start saving, the more time you have for your money to grow.  A discussion with an IFA is a good way to ensure you are planning effectively for retirement and can help put your financial affairs in order

"To seek help from an IFA who can walk you through your options, log on to unbiased.co.uk to carry out a free and confidential search."