The party’s manifesto, published yesterday (November 25), proposed to fix a tax relief anomaly which means that the lowest earning workers, the vast majority of whom are women, can miss out on £8,000 in pension savings over the course of their working life.
The net pay/relief at source issue means that workers earning less than £12,500 may miss out on pension tax relief if their scheme or provider uses the ‘net pay arrangement’ method of delivering tax relief rather than the ‘relief at source’ method.
This is because the former does not pay tax relief to members who are below the income tax threshold, whereas the latter does.
The difference between these two arrangements 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.
On top of this, the Conservatives have pledged to fix the tapered annual allowance which is affecting doctors’ pensions, but have stopped short of promising to scrap the taper altogether.
The party said it will hold an urgent review to solve the “taper problem” within the first 30 days of winning the election and would work with the British Medical Association and Academy of Medical Royal Colleges to solve the problem.
Last week, the government attempted to brush over the taper issue by pledging to cover the tax bills of members of the NHS Pension Scheme who are in frontline clinical roles in England.
But these measures only cover the 2019/20 financial year and currently only apply to clinicians.
Sir Steve Webb, former pensions minister and director of policy at Royal London, criticised the Conservatives’ manifesto for its lack of detail on how the party planned to solve the two pension tax relief issues and what deadline it would be working towards.
He said the tapered allowance should be scrapped altogether.
Sir Steve said: “It is welcome that the Conservative manifesto refers to two of the various anomalies in the pension tax relief system. On low-paid workers, the manifesto represents a welcome shift in position after the government has refused to act for several years.
“The tapered annual allowance affects far more people than senior NHS clinicians and creates complexity and uncertainty in the tax system. The best solution would be to abolish it outright.”
Jon Greer, head of retirement policy at Quilter agreed the Conservatives’ taper plans fall short.
Mr Greer said: “Boris Johnson’s Tory party appear to refuse to accept that the taper is not fit for purpose and should be scrapped, instead choosing to look for short term bespoke fixes for the NHS.
“The manifesto pledge sounds the same, as the Tories commit to work with medical bodies to find a fix. A far simpler response would be to scrap the taper altogether, although this maybe something the Treasury is reticent to do.”
The manifesto also outlined the party’s plans to keep the pensions triple lock, contrary to previous pledges to scrap it.
This was originally introduced in 2011 to guarantee that the basic and new state pension will rise by the higher of inflation, average earnings growth or 2.5 per cent.
Mr Greer added: “With earnings forecast to exceed 2.5 per cent and inflation over the foreseeable future, keeping the triple lock won’t cost much – or possibly anything – over this term.
“But at some point government is going to have to make a decision on the triple lock otherwise it will grow faster than either inflation or average earnings of the long term.”
The manifesto was also criticised by the industry for its lack of detail on how it plans to fix the social care funding crisis.
In his first speech as prime minister Boris Johnson promised to “fix the crisis in social care once and for all”.
But his manifesto only states that “nobody needing care should be forced to sell their home to pay for it,'' with no detail on how the party plans to address the funding issue.
Steven Cameron, pensions director at Aegon, said: “A restatement of the promise that people won’t have to sell their home to pay for care will be a relief to many, but we need far more detail and a long term sustainable plan.
“Hopefully, whoever is in government next month will look at the ideas put forward by all parties and work quickly to deliver on the Holy Grail of cross-party consensus.”
amy.austin@ft.com
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