Net Pay Action Group Press Release: Campaigners urge government to act quickly on pensions injustice pledge
Leading pensions and tax experts are calling on the Government to act quickly to deliver its manifesto promise1 to fix an unfair tax flaw. This flaw means around 1.7 million low-income workers (mostly women) are being unfairly charged 25 per cent more for their pensions as a result of the way their employer pension scheme operates
The Net Pay Action Group (NPAG)2 – 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. But 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.
As a first step, the Net Pay Action Group is calling on the Government to provide a firm timeline for its pledged review of the system and commit to implementing a solution. It 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.3
Commenting, former Pensions Minister, Baroness Ros Altmann, a member of the Net Pay Action Group, said:
“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.”
- The 2019 General Election Conservative manifesto stated: “A number of workers, disproportionately women, who earn between £10,000 and £12,500 have been missing out on pension benefits because of a loophole affecting people with net pay pension schemes. We will conduct a comprehensive review to look at how to fix this issue.” For the full text please click here (p16)
- The members of the Net Pay Action Group are: Low Incomes Tax Reform Group, Baroness Ros Altmann, The Chartered Institute of Payroll Professionals, AgeWage, NOW: Pensions, The People’s Pension, Pension and Lifetime Savings Association, The Investing and Saving Alliance, Association of British Insurers, Trades Union Congress, Age UK, Royal London, Smart Pension, The Pensions Administration Standards Association, Legal & General Investment Management, Ruston Smith
- The NPAG has put forward a remedy, which we believe would be both simple and comprehensive. It requires HMRC to use the data it already collects via PAYE real-time information (RTI) to identify, after the year end, those who have contributed to an NPA scheme and who have not earned enough to obtain taxpayer incentive. HMRC could then provide that sum via the informal P800 process (or those in Self Assessment could claim relief via their return). This would result in the extra money paid into the pension by these low earners being refunded to them, or that refund being offset against a tax liability. Further details of this proposal are set out here.