Millions could be set for pension boost by doing this | Personal Finance | Finance

Millions of savers could effectively boost their pensions if they complete any necessary Self-Assessment tax returns before the January 31 deadline.

Failing to file on time does not just risk a fine. It could also mean missing out on hundreds, or even thousands, of pounds in pension tax relief that is not paid automatically, according to PensionBee.

The online pension provider says higher earners, the self-employed and those whose income has changed are most likely to benefit – yet many are unaware they need to actively claim what they are owed.

PensionBee estimates that £1.3 billion in pension tax relief went unclaimed by higher and additional-rate taxpayers between 2016 and 2021.

While basic-rate relief of 20% is added automatically to most personal pensions, anyone earning more than £50,270 must usually complete a Self-Assessment return to claim the rest.

Higher-rate taxpayers can receive total relief of up to 40%, with additional-rate taxpayers able to claim up to 45%. PensionBee estimates the average higher-rate taxpayer could reclaim around £425.

Savers must remember to enter the gross value of their pension contributions on their return. An £8,000 payment becomes £10,000 once basic-rate tax relief is added.

Savers can receive tax relief on pension contributions of up to £60,000 in the 2024/25 tax year. However, this falls to between £10,000 and £60,000 for those earning over £200,000 due to the tapered annual allowance.

Those who have not used their full allowance in previous years may be able to apply unused amounts from the past three tax years under the ‘carry forward’ rule – allowing much larger contributions in a single year.

To do so, Brits must have been members of a UK-registered pension scheme during the years they are carrying forward from.

For the self-employed, pension contributions can reduce taxable income directly.

Someone earning £60,000 who pays £10,000 into a pension would reduce their taxable income to £50,000, potentially lowering their tax bill while increasing their retirement savings.

Unlike employees in workplace schemes, self-employed workers usually need to claim pension tax relief themselves through Self-Assessment.

Completing a tax return can also act as a financial check-up, helping savers spot missed relief and review their wider finances.This is particularly important for those who have changed jobs, entered a higher tax band or started working for themselves.

Lisa Picardo, chief business officer UK at PensionBee, said: “It’s estimated that over 5 million taxpayers are yet to fill out their Self-Assessment form for the previous tax year, so getting your ducks in a row before 31 January is crucial.

“For many, completing a tax return could unlock unexpected pension benefits. If you’ve changed jobs, started self-employment or entered a higher tax bracket, filing ensures you don’t leave valuable tax relief unclaimed.

“Our tax relief calculator can help provide clarity on how much tax relief could be added to your pension pot, and help you understand whether or not you may need to file a Self-Assessment tax return to claim a portion of it.”

Those required to file include the self-employed, landlords, people with untaxed income such as tips or commissions, people with savings or investment income, those who made capital gains, and parents earning over £60,000 who claim Child Benefit.