Workplace pension provider Now: Pensions is extending the deadline for its members to reclaim a tax relief top-up until the end of April.
In September, the company announced it would be topping up pension pots of non-taxpayer members to make up for the income tax relief shortfall, which was available until the end of December.
Members of pension schemes who don't pay income tax are nonetheless permitted to basic rate tax relief (20 per cent) on pension contributions up to £2,880 a year.
In practice, this means that HM Revenue & Customs (HMRC) will top up a net contribution of £2,880 to a gross £3,600.
However, this tax relief is only available where the pension scheme operates on a relief-at-source basis, which is only accessible through less than a hand full of companies.
It is not available for schemes that operate a net pay arrangement, which are the majority of pension funds in the market.
The difference between these two arrangements has become more noticeable since the nil rate income tax band has increased.
The nil rate band is currently at £11,500 but it is set to increase to £11,850 in April – which is above the auto-enrolment minimum threshold of £10,000.
The provider decided to extend the deadline so that the company and HMRC have "enough time to review claim forms and income tax records to ensure payment by the end of the tax year," a spokesperson at Now: Pensions said.
The extended deadline will not impact the claims themselves but payment will be made in the 2018 to 2019 tax year, she added.
Adrian Boulding, Now: Pensions director of policy, told FTAdviser that the provider wants to make sure members aren't missing out on potential tax relief.
He said: "We keep banging on HMRC’s door [to solve this issue]."
Mr Boulding's solution is not to promote relief at source over net pay arrangement schemes.
Instead, he believes HMRC should cross check the data and automatically give back the tax relief to the lower earners.
He said: "They need to make their computer systems work, make a small amendment in the legislation and automatically give the money back to the individuals, instead of [it] coming out of our pockets."
Currently, if a member of Now: Pensions, which operates a net pay arrangement, is a low earner and is owed tax relief, he will have to fill out a short claim form on the provider's website and a letter of authority, permitting HMRC to divulge tax details to the provider in respect of the tax year.
After both documents are submitted to the provider, Now: Pensions would then liaise with HMRC to confirm that these members do not pay tax.
Once confirmed, the company will credit members' pension pots with the income tax relief they would have received in a relief at source arrangement.
The provider did not disclose how much it has paid back to its members to make up for the lost tax relief.
Former pensions minister Ros Altmann is one of Now: Pensions biggest supporters on this matter, Mr Boulding said.
Back in September, she argued that the provider is going to pay the tax relief that these low earners should be entitled to, but which the government is denying them.
She said: “This scandal has been going on for a long time, but the government has failed to address it.
"Ideally, the Treasury needs to allow low earners to claim the tax relief they are entitled to. As auto-enrolment pension contributions are set to quadruple by 2019, the amount of money these low earners lose out on will increase sharply and more women will be denied the government help they should have.
"This scandal needs to be urgently addressed and I hope the HM Treasury will take the matter more seriously as most of these low earners will be women, who are far more at risk of inadequate pensions than men."
HM Treasury has previously said it is up to employers to choose what option is best for the needs of their staff.
maria.espadinha@ft.com
