12 January 2020

Royal London publishes three ‘key pension tax tips’ for those completing their tax return

5 min read

Steve Webb
Royal London



As a new FOI reply reveals that thousands of people ‘forget’ to report pension information to HMRC on their tax return, mutual insurer Royal London has published three tips for people completing their tax return this January. These tips help taxpayers get all the pension tax relief to which they are entitled or to avoid an unexpected tax bill in years to come.

A)     Claim higher rate relief on personal pension contributions

Many pension savers who pay income tax at the higher (or additional) rate, may be unaware that they need to claim higher rate relief through their tax return on contributions into a personal pension. 

Employee contributions into a personal pension or group personal pension automatically attract pension tax relief at the basic rate through the ‘relief at source’ method.  This tax relief is claimed by the pension provider on behalf of the member.  But those who pay tax at the 40% or 45% rate only get their extra tax relief if they claim it through their tax return.  For example, someone who pays £80 into a personal pension automatically gets an extra £20 in basic rate relief added to their pension.  But if they pay tax at 40% they are entitled to another £20 in tax relief which they will only get if they enter this information on their tax return.

Note that it is not necessary to enter member contributions to an occupational pension scheme (where full tax relief at the marginal rate is given when the contribution is made) nor contributions made via ‘salary sacrifice’ as such contributions are already paid gross.

B)      Report contributions in excess of your annual allowance

Individuals are expected to report on their tax return any pension contributions (from themselves or their employer) into a Defined Contribution pension and/or any growth in Defined Benefit pension rights in excess of the Annual Allowance, so that additional tax can be paid.   Latest figures suggest that the amount contributed in excess of Annual Allowance limits has increased *eightfold* in the last five years [see notes to editors] but it is likely that there is still significant under-reporting. 

Complications for taxpayers include:

-          Knowing what their own Annual Allowance is.  The standard Annual Allowance is £40,000 per year, but the situation could be different for those who are:

  • Affected by the ‘Money Purchase Annual Allowance’ – this is people who have accessed some taxable cash from a DC pension and who now have an annual allowance of just £4,000;
  • Affected by the ‘tapered’ Annual Allowance – those with total income and pension contributions over £150,000 can see their annual allowance reduced on a sliding scale to anything between £40,000 and £10,000; 
  • Able to ‘carry forward’ unused annual allowances from previous years;  the use of ‘carry forward’ enables people to put *more* money into their pension without breaching the annual limit;

-          Knowing the amount of pension contributions to include.  This needs to cover:

  • Contributions into Defined Contribution pensions, including those made by employer and employee;
  • The growth in value of Defined Benefit pension rights – this is calculated as the growth in annual pension entitlement, net of inflation, multiplied by sixteen;  DB pension providers should in principle be supplying this information to scheme members and it is necessary to have this information to complete your tax return;

C)      Report contributions made on your behalf under ‘scheme pays’

HMRC recently admitted that some taxpayers were failing to report on their tax return that a pension tax charge had been paid on their behalf by their occupational pension scheme.  A new FOI obtained by Royal London (attached) shows that in 2016/17 just over 1,000 people failed to report this information.  As the number of people affected by ‘scheme pays’ has grown rapidly since 2016/17, it is likely that thousands of people are now failing to report this information.  The FOI from HMRC says that this is a case of ‘under-reporting, not under-payment’, but taxpayers are expected to give complete information on their tax return.

Commenting, Steve Webb, Director of Policy at Royal London said:

‘Filling in your tax return can be challenging enough, but the complexity of the rules around pension tax relief for higher earners is a particular nightmare.  The good news is that some higher earners can claim additional tax relief provided that they put the right information on their tax return.  But others need to make sure they report contributions in excess of their annual allowance and pay the tax due now.  However, the complexity of the tax relief system means that this can often be a real challenge, even for taxpayers who are doing their best to be honest and open about their tax affairs’.

Notes to Editors

1.       Full text of FOI received by Steve Webb from HMRC is available upon request.

2.       Annual statistics on amounts paid in excess of the Annual Allowance are published here:


These figures show that the amount reported by taxpayers as being paid in excess of the annual allowance in 2017/18 was £812m, compared with £95m in 2012/13, an increase of more than eightfold in five years.

About Royal London:

Royal London is the largest mutual life insurance, pensions and investment company in the UK, with assets under management of £139 billion, 8.6 million policies in force and 4,348 employees. Figures quoted are as at 30 June 2020.

For further information please contact:

Royal London Press Office