Why many pension savers are missing out on tax relief
Millions of people may be due tax refunds as a result of tax code errors and confusion over pensions tax relief. However, individuals will need to apply for refunds, as HMRC won’t necessarily automatically correct these errors.
Multiple income streams
Wrong tax codes can be issued when HMRC does not have up-to-date information on company benefits or employee earnings. This can occur when people previously held more than one job, or had external sources of income, such as rental income, dividends or freelance work. It is estimated HMRC overcharged employees £3.5bn last year through such coding problems.
Higher-rate taxpayers can claim further relief
Many higher earners are also paying too much tax on their income, as they are not claiming back additional tax relief.1
Basic-rate tax relief, at 20%, is automatically added to pension contributions at source. But higher-rate taxpayers, contributing to SIPPs or private pensions, can claim an additional 20 % tax relief (or 25% for additional-rate taxpayers).
Some workplace schemes automatically give higher earners full tax relief, but not all. Those missing out are able to reclaim this money through self-assessment. HMRC also offers an online tax relief refund service for those that don’t normally file a tax return.2
The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
Sources
1 Pensions Age | Higher earners missing out on ‘hundreds of millions’ in pension tax relief
2 UK Government | Claim tax relief on your private pension payments
May Bulletin 2026
This insight is part of our May Bulletin 2026. Explore all the articles:
