Covid delays govt probe into net pay anomaly

Covid delays govt probe into net pay anomaly

The government is yet to publish its call for evidence on addressing the net pay anomaly in the pensions tax relief system after Covid-19 caused delays.

In a written statement, economic secretary to the Treasury John Glen admitted Covid-19 had impacted the publication date of the call for evidence and said the government would provide more information “in due course”.

Mr Glen said: “At Budget 2020 the government announced a call for evidence will be published on pensions tax relief administration, in line with our manifesto commitment to comprehensively review this issue. 

“In the light of Covid-19, the government is considering the publication of this and other government documents on a case by case basis, taking into account the impact of Covid-19 on stakeholders.”

The net pay anomaly occurs in the pensions tax relief system and means low earners are missing out on a 20 per cent boost on their pension contributions.

Members of pension schemes who don't pay income tax are granted basic rate tax relief of 20 per cent on pension contributions up to £2,880 a year. In practice this means HM Revenue & Customs will top up a net contribution of £2,880 to a gross £3,600.

But this tax relief 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.

The difference between these two arrangements became more noticeable after the income tax personal allowance increased to £12,500, which is above the auto-enrolment minimum threshold of £10,000.

The Conservative Party promised to fix this issue in its manifesto for the 2019 general election, which it won, and in the Budget the government said it was “committed to reviewing options for addressing these differences".

Former chancellor Philip Hammond had previously said it was not cost effective for HM Treasury to act on this anomaly.

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