Government urged to act quickly on pensions injustice pledge

Leading pensions and tax experts are calling on the government to act quickly to deliver its manifesto promise to fix an unfair tax flaw.

This flaw means around 1.7 million low-income workers (mostly women) are being unfairly charged 25% more for their pensions as a result of the way their employer pension scheme operates.

The Net Pay Action Group (NPAG) – made up of pension providers, lawyers, tax specialists, payroll specialists, employers, consumer groups and policy experts – has warned that this issue threatens to damage public confidence in auto-enrolment, widen the gender pensions gap, and let down those who need to increase their retirement savings most.

Many pension schemes provide the government-funded savings incentives (generally thought of as tax relief) through a system called relief at source (RAS), enabling lower earners to get the taxpayer-funded contribution to their pension automatically.

However, other pension providers add this money through a net-pay arrangement, which works well for most people, but not for those who earn less than the £12,500 threshold for paying income tax. These people miss out on the taxpayer-funded contribution to their pensions they would otherwise be entitled to and they end up paying it themselves.

The Net Pay Action Group is urging the government to consider the action group’s proposed solution of a system that would allow HMRC to identify which savers, earning below the income tax threshold, have contributed to a net-pay scheme. HMRC could then provide that government savings incentive, worth 25% of each low-paid worker’s pension contribution, through an existing process.

Former Pensions Minister, Baroness Ros Altmann, a member of the Net Pay Action Group, commented, “I’m delighted that the Government has committed to addressing this problem and hope urgent action will be taken to give these low-paid workers, including over one million women, the pension incentives they need and deserve.”

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