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Govt eyes action over pension tax anomaly costing low earners

The government will look to act on an anomaly in the pension tax system that has resulted in more than a million low paid workers miss out on top-ups to their contributions, reports suggest.

Campaigners in recent weeks including former pensions minister Ros Altmann have put pressure on the Treasury to tackle the current quirk in the rules that means lower earners in “net pay” pension arrangements have not received tax relief on their pensions.

An estimated 1.2 million people are earning below the £11,850 minimum personal tax threshold, and are still entitled to top-ups on pension contributions, but the schemes they are in are not set up to pay in the government share.

According to the Financial Times, the government has now committed to investigate ways to “tackle any differences” in pensions tax relief provision.

Aegon head of pensions Kate Smith says: “It is unfair that those earning less than the personal income tax allowance currently miss out on tax relief. Not only does this undermine auto-enrolment but it also widens the pension gap between those who have adequate pension savings and those at risk of running out of funds in retirement.

“Government should act quickly as the ‘net pay’ anomaly is set to rise further as the minimum auto-enrolment contributions are due to increase in April.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. If you don’t pay tax, how is it anomalous to not get tax relief? The anomaly is non-tax payers who do get relief for tax they don’t pay.

  2. This should have been addressed at outset by both providers and govt planmakers and it’s not an anomaly it’s a breach of terms and conditions. You get it on net pay personal plans at source, why not auto enrolment? I hope that any underpayment of relief will be backdated as it certainly should be.

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