Govt inaction criticised over pension tax anomaly

The government’s lack of progress towards rectifying an estimated 1.5 million or more low-income workers having to pay a 25% penalty for their pension savings has been branded “disappointing” by the Low Incomes Tax Reform Group (LITRG).

This issue can cost those affected around £65 a year due to the way their employers’ pensions schemes operate.

The government has today published its responses to a number of tax consultations although the LITRG highlighted that it has yet to respond to a call for evidence on pensions tax administration. This is despite the call for evidence being concluded longer ago than several other consultations on which the government has now responded.

Many pension schemes provide a government-funded savings incentive, in the form of tax relief, through a system called relief at source, enabling lower earners to get a taxpayer-funded contribution to their pension automatically.

However, other pension providers add this money through a net-pay arrangement. This works well for most people, but not for those who earn less than the £12,570 threshold for paying income tax, with these people missing out on the taxpayer-funded contribution to their pensions they would otherwise be entitled to and end up paying it themselves.

“This is an unacceptable penalty to pay for the same pension savings as their counterparts for whom their employer has chosen to use a relief at source scheme,” commented LITRG senior technical manager, Kelly Sizer.

“Given this issue has been known about for several years, the cumulative cost is mounting and continues to do so the longer the government delays in implementing a solution.

“It is therefore disappointing that the government has not taken the opportunity presented by today’s tax ‘Legislation day’ to respond to the call for evidence it published a year ago following its manifesto commitment on the issue.

“While there have understandably been other priorities over the last 18 months, we now urge the government to take action to deal with this injustice as soon as possible.”

    Share Story:

Recent Stories


Deep Neural Networks for FX Prediction
Adam Cadle speaks to Richard Turner Head of Research and Mike Emambakhsh, Ph.D. Senior Research Scientist at Mesirow Currency Management about their work with Machine Learning, specifically Deep neural networks for FX prediction.

Mortgage Insider Podcast Series 2 Episode 10: Building Resilience with Peter Brodnicki
We join Peter Brodnicki, CEO and co-founder of the Mortgage Advice Bureau, to reflect on the value of resilience in business. He tells us about lessons learned during his career, the challenges he’s faced since starting MAB 20 years ago and why it’s important to take risks and disrupt your own business.

Will open banking revolutionise the lending industry
Adam Cadle speaks to Jack Tenwick, Head of UK Sales, Yolt Technology Services, about how to get the most out of your lending business and the role of open banking

FREE E-NEWS SIGN UP

Subscribe to our newsletter to receive breaking news and other industry announcements by email.

  Please tick here to confirm you are happy to receive third party promotions from carefully selected partners.