The minister for Pensions and Financial Inclusion has admitted there will not be a quick fix to the issue affecting at least 1.3m low earners, who are missing out on pension tax relief because of the scheme they were enrolled in.
Speaking at the Association of Member Nominated Trustees’ Autumn Conference 2019 in London yesterday (October 31), Guy Opperman said he was “acutely conscious” of the problem, although it was an issue for the Treasury to address, not DWP.
The issue concerns members of pension schemes who don't pay income tax but miss out on the basic rate tax relief granted to others in that situation.
HMRC grants 20 per cent tax relief on pension contributions of up to £2,880 a year. But this is only available where the pension scheme operates on a relief-at-source basis, which is only accessible through a handful of companies.
It is not available for schemes that operate a net pay arrangement, which are the majority of pension funds in the market.
In practice the relief means HMRC will top up a net contribution of £2,880 to a gross £3,600.
Mr Opperman said: “Clearly we could have done with a budget, sadly that is not happening next week. Sajid [Javid, the chancellor of the exchequer] is mindful of that.
“But in my view, it is part of a wider scheme of tax reform and other reforms, which is exceptionally difficult to do.
“And to pretend otherwise is not naïve but it is just a factual reality that in parliament being able to do the multitude of tweaks to tax and pay regulations is very very complicated.”
The government scrapped its plans to hold a budget on November 6 after prime minister Boris Johnson pushed for a general election, which has now been set for December 12.
Mr Opperman added: “I clearly accept that the chancellor has to address at some stage in the future a variety of issues on matters that affect pensions, and I am sincerely hoping that will take place in the longer term.”
The difference between relief-at-source and net pay has become more noticeable since the income tax personal allowance increased to £12,500, which is above the auto-enrolment minimum threshold of £10,000.
Former chancellor of the exchequer Philip Hammond previously said it is not cost effective for HM Treasury to act on this anomaly.
FTAdviser reported in June that low earners could be missing out on up to £111m in tax relief in 2019/20 as a result, according to analysis from Now: Pensions.
maria.espadinha@ft.com
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