Around 800,000 higher-rate taxpayers could be missing out on pension tax refunds worth more than £1 billion a year because they do not realise they need to claim the money from HMRC.
The issue mainly affects employees whose tax is collected automatically through PAYE and who do not usually complete a Self Assessment tax return.
Because the correct amount of income tax has already been deducted from their salary, many assume there is nothing more they need to do.
But pension experts say that assumption could be costing some workers an average of more than £1,700 each.
New analysis of HMRC figures following an FOI request by former pensions minister Steve Webb at LCP suggests hundreds of thousands of higher-rate taxpayers who pay into personal pensions may not be claiming the additional pension tax relief they are entitled to.
Why some pension savers are missing out
Many personal pensions operate under a system known as "relief at source".
Under this arrangement, basic-rate tax relief is automatically added to pension contributions by HMRC.
For example, if someone pays £800 into their pension, the Government tops it up to £1,000.
However, people who pay 40% or 45% income tax can usually claim even more relief.
The catch is that the extra tax relief is not added automatically.
Instead, many savers need to tell HMRC about their pension contributions, often through a Self Assessment tax return, a tax code adjustment or by contacting HMRC directly.
According to figures obtained from HMRC, only 316,000 higher-rate taxpayers reported these pension contributions through Self Assessment in 2023/24.
However, analysis suggests there could actually be more than 1.1 million higher-rate taxpayers paying into these types of pensions.
That leaves a gap of around 807,000 people who may not be claiming all the tax relief available to them.
The average refund could be worth £1,756
HMRC data shows the average pension contribution declared by claimants was £8,782.
Based on that figure, the average higher-rate taxpayer could be entitled to additional tax relief worth around £1,756.
For additional-rate taxpayers, the figure rises to around £2,195.
The analysis suggests the total amount potentially going unclaimed could exceed £1.4 billion every year.
Why the number affected could keep rising
The warning comes as more workers are being pulled into higher-rate tax bands because income tax thresholds remain frozen.
In 2023/24 there were around 6.9 million higher-rate and additional-rate taxpayers.
By 2025/26 that figure had already risen to 8.3 million and is expected to increase further.
As more people cross the higher-rate tax threshold for the first time, experts fear many will not realise they need to claim additional pension tax relief.
Steve Webb, former pensions minister and partner at pension consultants LCP, said: "With more and more people being dragged into higher rates of income tax, it is increasingly important that they claim all the tax relief to which they are entitled."
He added: "Anyone saving into a personal pension or other relief at source scheme can get higher-rate relief – but only if they claim it."
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Can you claim money from previous years?
The good news is that pension savers may still be able to recover money they missed in previous tax years.
Experts are encouraging anyone who pays higher-rate tax and contributes to a personal pension to check whether they have claimed the correct level of relief.
In many cases, claims can be backdated for up to four tax years, potentially resulting in significant refunds from HMRC.
