Govt’s 'sloth-like policymaking’ costs lower earners £150m in pension funds

Delays on policy decisions have cost lower earners nearly £150m in pension funds, according to new calculations from Quilter.

The financial advice company has suggested that a quirk in the tax system means many on a lower pay rung are not receiving government tax relief into their pension pots, because their employer has put them in a ‘net-pay’ scheme, while other workers who are in a ‘relief at source’ scheme receive the top up.

Since November 2019, when the government recognised the problem and promised to fix the system, around £142m has been lost in pension funds. In the 2020/21 tax year, approximately 1.5 million people lost an average of £62.60.

Quilter highlighted that while the figure is not a huge sum to an individual, once the impact of compound interest when invested in the pension is taken into account, these are significant sums of money that can make a difference to someone’s retirement.

The figure since the issue was raised in Parliament back in 2016 is even more significant, at £265m, and Quilter stated that if “the can is kicked down the road” for another year then the loss will be another £95m.

Quilter retirement planning expert, Ian Browne, said that the government does not 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,” Browne said.

“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.”

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