Press Release: New report provides boost to campaigners for pension fairness
The Low Incomes Tax Reform Group (LITRG) has welcomed the Office of Tax Simplification’s (OTS) Life Events report – especially its recommendation to address an inconsistency in tax rules which means that more than a million people on low incomes are losing out on tax relief on their pension contributions. LITRG hopes this report will provide a catalyst for some real improvements to the tax system for low income, unrepresented taxpayers.
The Office of Tax Simplification’s new Life Events report looks at the complexities that can arise in relation to the tax system as people experience key events in their lives, such as having children, entering work, saving for or drawing a pension, and helping others who need support.
The report makes 15 recommendations, one of which is that ‘The government should consider the potential for reducing or removing the differences in outcomes between net pay and relief at source schemes for people whose income is below the personal allowance, without making it more complicated for those affected’.
The report comes on the same day as release of HMRC’s latest statistics on the estimated costs of tax relief which show that pension contributions tax relief is set to cost government more than £21 billion – most of which will go to higher paid earners.
Victoria Todd, Head of LITRG Team, said:
“We are pleased that the OTS has highlighted the injustice faced by many low income workers who unfairly miss out on tax relief. LITRG has previously made representations to government on this issue, including a proposed solution, and this week wrote to the main four parties in Parliament encouraging them to put a commitment to addressing this unfairness in their manifestos for the next election. With OTS highlighting this too we are hopeful that there might finally be some traction on implementing a solution.
‘’Lower earners are in a pension lottery through no choice of their own. The issue affects those in net pay arrangements as opposed to relief at source arrangements, who earn less than or not much more than the personal allowance (currently £12,500). The issue means that it can cost 25 per cent more for someone in a net pay arrangement pension scheme to make the same overall pension contribution as someone in a relief at source arrangement. Most of those impacted will be women.1 This is unfair.
"Despite the best efforts of LITRG, working with a coalition of other interested parties, we have struggled to progress this issue with government. We recognise that there are cost implications to putting net pay arrangement contributors on an equal footing with those using relief at source schemes, but the cost of extending tax relief to this lower paid group really pales into insignificance in the context of £21 billion. Our understanding is that auto-enrolment was originally costed to provide this relief and so not only would a change make things fairer, it is what was originally intended.
‘’There is no rationale for allowing this unfairness to continue. We would urge the Government to consider this when responding to the OTS’ report."
- More background information is provided in our submission Budget 2018 representation: Net Pay Arrangements for lower paid workers