I am owed higher rate pension tax relief so why won't HMRC give me my payment? STEVE WEBB replies

I'm writing off the back of your research into unclaimed higher-rate pension tax relief.

I've tried claiming this myself but have encountered problems with the process. 

I've monitored the process via the HMRC app and my claim went from 'received' to 'in progress' to 'done' but with no payment and no communication.

When I called, I was told there'd been an error and it was being passed to a technical team, then it cycled back to 'done' again with nothing paid. 

From talking to others, this doesn't look like an isolated error – it looks systemic.

Given your track record getting HMRC to change how it handles pension overpayments, I wanted to ask: have you seen this pattern in your own research, and is there a known escalation route beyond the general helpline?

Steve Webb replies:  As you rightly say, I have in the past highlighted the fact that savers may be collectively missing out on hundreds of millions of pounds of pension tax relief to which they are entitled.

But I'm concerned to hear that when you tried to claim this extra relief you have clearly got stuck in the system.

By way of background, the issue relates to people who pay into personal pensions or any pension arrangement which delivers tax relief through the Relief At Source method.

Under this approach, you pay into a pension out of your after-tax income and then HMRC add basic rate tax relief, directly paid into your pension pot.

For those who are basic rate taxpayers (or indeed non-taxpayers) this system works fine. For example, a pension contribution of £80 out of take-home pay gets a £20 top-up from HMRC, giving £100 in the pension scheme.

This can be thought of as a 'gross' contribution of £100 on which HMRC is giving basic rate relief at 20 per cent.

However, if you are a higher rate taxpayer then a £100 gross pension contribution should trigger 40 per cent relief, not 20 per cent.

This means you are entitled to another £20 in this example. But the catch is that you don't get this unless you claim it.

There are two main ways of getting the extra tax relief.

One is to wait until the end of the tax year and include this information in your self-assessment tax return.

Note that in my example you would enter the £100 gross contribution on your tax return rather than the £80 you actually paid.

HMRC would realise that you would automatically have received £20 in tax relief but were due another £20 and would factor this into their tax calculation.

When all of this has been worked through, you would end up with £20 off your tax bill.

But if you don't normally fill in a tax return, another way of doing it is to complete and submit a form to HMRC. More details on how this works can be found here: Claim tax relief on your private pension payments.

You can either use this website to claim online, or you can write to HMRC with the relevant details. If your application is successful, HMRC will adjust your tax code for the current year so that you get the tax rebate this year.

In your case, it wasn't obvious to me what was going wrong and so I contacted HMRC on your behalf.

It seems that the issue was that you were claiming the top-up for a year in which you were due to file a tax return.

In this case you were expected to claim via the tax return process rather than by writing to them or claiming online.

But no one told you this and you were left hanging.

HMRC has apologised to you, offered a token £50 for the inconvenience, and has said that they will now process your application based on the information that you have already supplied.

An HMRC spokesman told me: 'We've spoken to your reader to inform him that he should claim pension tax relief through his tax return as he is in Self Assessment.'

Although the process described above sounds a bit bureaucratic, it is well worth it.

Subject to overall limits, for every £80 you pay into a pension you can get an extra £20 in tax relief if you are a higher rate taxpayer (and more if you are an additional rate taxpayer).

So, for example, someone paying £4,000 (net) into a pension during the year can get an extra £1,000 in tax relief but only if they claim it.

For anyone who has similar experiences and cannot get anywhere by trying to contact HMRC, the best method of escalation is to raise the issue via your local MP: Find your MP.

I am a big believer in MPs being made aware of problems such as this so that they can put more pressure on ministers to get systems sorted out so that they work better for savers.

Has Steve Webb helped you? 

Steve Webb will publish his 500th column for This is Money in a few weeks' time, writes This is Money. 

It's a double celebration because he marked his tenth anniversary as our retirement agony uncle earlier this year.

Did you write in over the past decade and get a reply from Steve that helped with your finances? Or do you recall a column where you learned something important that made a difference to you personally?

One of Steve's most memorable achievements was discovering that more than a hundred thousand elderly women were being underpaid some £800million in state pension. 

Were you one of those affected by the scandal, what did it mean to you, and how did you spend your payout?

We would love to hear from you. Write and tell us your story at pensionquestions@thisismoney.co.uk. 

Please put ANNIVERSARY in the subject line, and we might publish some of your messages (anonymously) in a special feature when Steve reaches his 500th column milestone next month.

Ask Steve Webb a pension question

Former Pensions Minister Steve Webb is This Is Money's Agony Uncle.

He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.

Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.

If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk.

Steve will do his best to reply to your message in a forthcoming column, but he won't be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

Please include a daytime contact number with your message - this will be kept confidential and not used for marketing purposes.

If Steve is unable to answer your question, you can also contact MoneyHelper, a Government-backed organisation which gives free assistance on pensions to the public. It can be found here and its number is 0800 011 3797.

Steve receives many questions about state pension forecasts and COPE ¿ the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve's several earlier columns about state pension forecasts and contracting out, which might be helpful.  

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