The Government has launched a consultation into the net pay anomaly, following a critical report by the Public Affairs Committee earlier this week on pensions tax relief administration.
As part of this consultation HM Treasury is specifically seeking evidence from the industry on the issues surrounding net pay arrangements, which have led to many lower paid workers, particularly women, missing out on tax relief on their contributions into their workplace pensions.
This consultation has been welcomed by the industry, many of whom said it was long overdue.
The People’s Pension head of policy Tim Gosling says: “We welcome the Government’s consultation on the net pay anomaly – something they promised to review during the last General Election campaign.
“Tax relief should provide an incentive for all people to save and boost pension savings, but this tax flaw is depriving 1.2 million lower earners – mostly low paid women – of a much-needed boost to their savings.
“This issue threatens to damage public confidence in auto-enrolment and lets down those who need to increase their retirement savings most. Fairness demands this is fixed to ensure all savers receive the tax relief they’re entitled to.”
Meanwhile Aegon’s head of pensions Kate Smith says: “We’re delighted that the government is finally looking to address one of the greatest injustices in the pensions tax relief system. Low earners, mainly women, who are saving in pension schemes which use net pay schemes to administer pension tax relief are not receiving the 20 per cent tax relief on their pension contributions to which they are entitled.
“Had they been saving in a scheme which used ‘relief at source’ to administer pension tax relief they would have received this government top-up and had more in their take-home pay.
“This is a growing problem as more non-taxpayers are being auto enrolled into a workplace pensions scheme and not always benefiting from the top-up. It’s important that this group is treated equally and fairly, regardless of how tax relief is administered.”
She says that any solutions proposed need to be simple for savers to understand and easy and inexpensive for employers, providers and the government to administer. She adds that it could take time to come to a solution that meets all these needs.