The UK's top earners missed out on an "eye-watering" £1.3bn in unclaimed pension tax relief between 2016/17 and 2020/21, despite a year-on-year fall in the number of taxpayers with unclaimed tax relief, analysis from PensionBee has found.

The provider revealed that 76 per cent of higher rate taxpayers eligible to claim pension tax relief through self-assessment failed to do so over this five year period, while 46 per cent of additional rate taxpayers also missed out on a rebate.

Indeed, according to the figures, which were obtained via a series of freedom of information requests to HMRC, the number of eligible higher rate taxpayers not claiming beyond the basic rate of tax relief fell from a high of around one million individuals a year between 2016/17 and 2018/19, to 864,000 and 574,000 in 2019/20 and 2020/21 respectively.

In addition to this, the number of eligible additional rate taxpayers not requesting a rebate fell from 52,000 in 2016/17 to 28,000 in 2020/21.

PensionBee's analysis found that, in monetary terms, higher rate taxpayers therefore left behind an average of £245m each tax year, while in the case of additional rate taxpayers, an estimated £18m went unclaimed every year between 2016/17 and 2020/21.

Based on this, the analysis revealed that higher rate taxpayers gave up a combined £1.2bn over this five year period, while additional rate taxpayers missed out on approximately £89m over the same five-year period.

In 2020/21 in particular, this meant that higher rate taxpayers missed out on an average of £425 each, while additional rate taxpayers missed out on £527 each.

Commenting on the findings, PensionBee director of public affairs, Becky O’Connor, argued that while it is "encouraging" to see the number of taxpayers with unclaimed tax relief declining year-on-year, the £259m left in 2020/21 was "still an eye-watering amount that should have gone back in savers’ pockets – or better yet, their pensions".

In order to claim tax relief on their pension contributions, eligible higher and additional rate taxpayers would need to complete a self-assessment, even though they are employed and usually handle their tax matters exclusively via payroll (PAYE).

However, PensionBee pointed out that those eligible for tax relief could use pension carry forward, which allows individuals to make use of any unused allowance from the three previous tax years, as long as they were a member of a registered pension scheme during the relevant time period.

In addition to this, it noted that, if a saver is a higher or additional rate taxpayer, and has missed out on tax relief above the 20 per cent basic rate, they can claim relief dating back four years which, from the current tax year, is 2018/19.

PensionBee also highlighted the potential role for industry tools, such as its new Pension Tax Relief Calculator, which aims to help savers understand how much tax relief they can claim on their pension contributions.

O’Connor continued: “Tax relief is a vital incentive that encourages people to save efficiently towards their retirement and too many people - at both ends of the spectrum - continue to miss out on this crucial benefit.

“Our new tax relief calculator is designed to enable savers to see how much they’re eligible to claim back for the current tax year, and if this is likely to be done automatically by their pension provider, or if they’ll need to claim additional relief through Self-Assessment.

“Savers can also use self-assessment to make the most of carry forward which enables them to claim any unused allowance from the previous three tax years, starting with 2019/20.

“They can contribute up to 100 per cent of their salary in the current tax year, to a maximum of £40,000. By raising awareness of this important issue, we hope to see the amount of unclaimed tax relief decrease in the years to come.”

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