Around 81% of higher rate taxpayers eligible to claim pension tax relief through Self-Assessment failed to do so in 2017/18, missing out on £770m a year.

For additional rate taxpayers, the figures stand at 54% and £60m respectively, according to analysis of government figures obtained by pension provider PensionBee.

Romi Savova, CEO of PensionBee, said: “A lack of awareness of how the tax relief system works means that too many people are missing out on one of the key benefits of pension saving.

“While relief for basic rate taxpayers is automatically added to a pension as a tax top-up, any further tax relief owed to higher and additional rate taxpayers must be claimed through Self-Assessment. This is yet another reason why the pensions system is in need of dramatic simplification.”

How does pension tax relief work?

PensionBee explains there are two ways that consumers receive tax top-ups on their pensions: via the ‘net pay’ system (trust-based schemes) or via ‘relief at source’ used by personal pensions.

The relief at source system for personal pensions – which had 10.4 million members in 2017/18 – requires pension providers to claim basic rate tax top-ups on behalf of members and put it in their pensions. For example, if a basic rate taxpayer pays £100 into their pension, the provider claims £25 from HMRC and adds it into the pension, meaning a total contribution of £125.

Higher rate and additional rate taxpayers also receive this 25% tax top-up but they can claim an extra 25% and 31% tax top-up via their Self-Assessment.

PensionBee highlights that many higher rate and additional rate taxpayers will have no need for a Self-Assessment if they’re in employment and typically deal with tax issues via (PAYE).

However, those who earned more than the basic rate tax threshold and who contributed to a personal pension will need to register for Self-Assessment; it’s not just for the self-employed.

For anyone who may have missed out on pension tax relief, there’s a time limit to claim. A claim must be made within four years of the end of the tax year that’s being claimed for.