Government delays in making policy decisions around the net pay anomaly have cost low earners nearly £150m in pension funds, according to Quilter.
The wealth manager said the quirk in the tax system, which means low earners in ‘net-pay’ schemes are not receiving government tax relief into their pensions while others who are in a ‘relief at source’ scheme receive the top up, are costing people millions.
Back in 2019, the conservative government recognised the problem and promised to fix the system. However, since then, Quilter said, around £142m has been lost in pension funds. In the 2020/21 tax year alone 1.5m people lost £62.60 each.
The issue was first raised in parliament back in 2016 and since then the tally of missed relief has reached £265m. If there is a further delay, there could be an additional loss of £95m.
Accumulated over the past number of years and combined with compound interest, these are significant sums of money that can make a difference to someone’s retirement, Quilter said.
Ian Browne, retirement planning expert at Quilter, said: “We all know the feeling of never-ending to do list and a bursting inbox. However, few of us are responsible for the retirement funds of the nation and costing the lowest earners £150m by failing to tick something off.
“Yet, the government doesn’t seem to comprehend the cost of their sloth-like policymaking. The net pay issue is not one that has recently come to light and every year the government fails to rectify the situation millions more are lost."
Women are the overwhelming victims of this anomaly as they account for approximately two-thirds of the people impacted.
Quilter said by perpetuating this issue, “government have allowed this two-tier pension system to operate for too long”.
While the government launched a consultation on how to remedy the situation in July last year there has been no update. Quilter is urging the government to prioritise this work and provide a remedy.
Browne added: “On top of the growing gap created by the government, we are seeing an increase in multi-jobbers. Many people who have several jobs with lower pay will miss out on the government top-up more than once and it will accumulate to have a dramatic impact on their future prosperity.
“The chancellor appears keen to create a name for himself and fixing issues and quirks in the system that are unfairly impacting working people then the net pay issue should be high on their agenda, even if it isn’t dominating front pages.”
The Treasury has been approached for comment.