Workplace pension provider Now: Pensions will be topping up the pension pots of non-taxpayer members for the fourth year in a row, after seeing claims double in 2017/18.
The master trust, which has 1.7m members, operates a net pay arrangement, which due to an anomaly typically sees low earning savers miss out on the tax relief top-up offered by government to those enrolled in relief at source schemes.
But Now: Pensions has offered to contribute any missing tax relief directly into the member’s pension fund subject to them submitting a claim before January 31.
Between 2016/17 and 2017/18, the master trust said it saw a 100 per cent increase in such claims from its members.
Now: Pension believes a lot of this growth was down to increased awareness amongst its participating employers, whom the provider “enlists to help to spread the word to members”.
The maximum top-up members have received has also increased over the years – from £10.25 in 2016/17 to £63.64 in 2019/20 - due to the increase in the auto-enrolment minimum contributions, which hiked from 1 per cent to 5 per cent in the past two years.
The tax relief anomaly has risen in prominence in recent years as auto-enrolment and a rise in the personal allowance meant more people were caught in its net. The personal allowance currently sits at £12,500, which is above the auto-enrolment minimum threshold of £10,000.
The issue affects members of pension schemes who don't pay income tax and are saving into schemes that operate a net pay arrangement, which the majority of pension funds in the market do.
On the other hand savers in pension schemes that operate on a relief-at-source basis are granted basic rate tax relief of 20 per cent on pension contributions of up to £2,880 a year.
In practice this means HMRC will top up a net contribution of £2,880 to a gross £3,600.
While former Chancellor of the Exchequer Philip Hammond said it is not cost effective for HM Treasury to act on this anomaly, the Conservative party has recently proposed to fix the problem.
Meanwhile Adrian Boulding, Now: Pensions director of policy, has presented a solution to the government proposed by the Low Incomes Tax Reform Group, an initiative from the Chartered Institute of Taxation.
This fix would see HMRC introduce an extra step in its P800 annual assessment in order to calculate whether or not an employee has paid the right amount of tax.
maria.espadinha@ft.com
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