The £12,000 Pension Tax Relief Mistake That’s More Common Than You Think
One of my clients was doing everything right.
She was a higher-rate taxpayer, earning around £60,000. Paying into her workplace pension every month. Never missed a beat.
But when I dug into how her pension was actually set up, I realised something that shocked her.
She was missing out on £100 of tax relief every single month.
Why?
Because her workplace pension used something called Relief at Source.
Here’s how that works:
Relief at Source
Used by all personal pensions
Used by some workplace pensions
You contribute after tax is taken from your salary, ie from your net pay.
Your provider reclaims 20% tax relief from HMRC and adds it to your pension
But if you’re a higher- or additional-rate taxpayer, you have to reclaim the rest yourself
And she didn’t know that.
So for more than ten years, she never claimed the extra relief she was entitled to. £100 a month. Over £12,000 in total - gone.
Not because she did anything wrong. But because no one had ever explained how it worked.
She assumed payroll had it covered, and no one said otherwise.
Now compare that to Net Pay.
Net Pay
Used by many workplace pensions
Your pension contribution is taken before tax is calculated, ie from your gross pay.
You receive full tax relief immediately, at your highest rate
No reclaim needed. It’s handled by payroll
Same pension. Same £500 contribution. But the real cost could be £300 or £400 depending on how the scheme handles it, and whether you know what to check.
And here’s the truth. Most people don’t know which method their workplace pension uses.
They assume it’s handled automatically. That the system works behind the scenes. That someone, somewhere, is sorting it.
But sometimes, no one is. And that’s when problems like this happen.
I referred her to a good accountant who helped that client reclaim what she could and made sure she wouldn’t lose a penny more going forward.
That feeling of relief, and finally understanding it, was massive for her. And it reminded me why I do this.
Because financial planning isn’t just about growth and returns. It’s about fixing things that could quietly cost people thousands. And giving them clarity and confidence for the future.
If you’re not 100% sure how your own pension handles tax relief, now’s the time to check.
It might be the most valuable five minutes you spend this year.
And if you’re not sure where to start, drop me a message. I’ll help.
This article is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
The value of pensions and any income from them can fall as well as rise. You may not get back the full amount invested.
Levels and bases of, and reliefs from, taxation are subject to change and their value will depend upon personal circumstances. Taxation and pension legislation may change in the future.