A quarter of wealthy earners are not putting any retirement savings in to a pension despite the government pledging to boost their fund with tax relief.
This adds up to around 216,000 workers paying income tax at 40% or more missing out on valuable pension contribution relief worth £438 million a year.
Research by pension giant Prudential asked workers on a salary between £42,275 and £149,999 found 21% claimed they cannot afford to make any pension savings.
Another 13% confessed they saw no sense in saving for retirement, while 17% made no savings but had no specific reason why not.
The average higher rate taxpayer pays £425 a month in to a pension and picks up basic rate tax relief of £85 a month or £1,020 a year, paid directly in to their pension fund. They could claim up to £1,020 a year more by filing a self assessment tax return.
Turning down free money
HM Revenue & Customs figures show 58% of the estimated 900,000 higher rate taxpayers pay in to defined contribution pension schemes, while another 15% have non-contributory or defined benefit schemes.
Despite average incomes of £58,540, the rest do not save in to a pension.
Around 43% of these say they have alternative retirement arrangements, 4% have self-invested personal pensions (SiPP) and another 2% claim they will not retire.
Prudential’s Matthew Stephens said: “Pension saving offers valuable tax reliefs to all workers and particularly to higher rate taxpayers. Basic rate 20% tax relief is available at source plus up to an extra 20% cent from HMRC for higher rate taxpayers. Turning down what is effectively free money simply does not make sense.
“It is worrying that so many higher rate taxpayers say they cannot afford to save into a pension despite earning healthy salaries. The good news is that it is never too late to take action on saving for retirement and we urge all workers to seek advice on long-term retirement planning.”
Pension fees are too high
Meanwhile, retirement savers paying in to pensions are increasingly unaware of direct contribution pension scheme costs, as an alarming lack of transparency continues to surround the fees associated with pension funds, a new report by financial and actuarial consultants LCP has revealed.
The firm’s survey of over 300 funds revealed that around 30% of DC investment providers would not reveal the indirect costs associated with their funds.
LCP is calling on more fee transparency so retirement savers were not discouraged from paying in to schemes.
Heather Brown, LCP investment partner and report author, said: “Investment fees for DC funds can be substantial, which is a particular concern with the imminent introduction of auto-enrolment and the expected growth in the number and size of DC pension arrangements throughout the UK.”
“More transparency on fees is needed to help employers, trustees and pension scheme as this could lead to lower costs, which should result in larger pensions for members. In particular, attention needs to be paid to the fees charged for the default investment option as this is where the majority of DC scheme members invest.”