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Ros Altmann: The under the radar pension tax scandal

Ros AltmannI want to highlight a major pensions injustice concerning employers who choose an auto-enrolment scheme administered on a net pay basis.

Such schemes cannot add the 25 per cent bonus of tax relief to contributions of workers earning less than £11,500 a year from the employer.

Auto-enrolling these employees – mostly women – into a net pay scheme forces them to pay extra for their pension. Every £10 that someone on more than £11,510 a year puts into a pension will cost only £8 but every £10 low earners contribute costs them the full amount. So the lowest paid are paying £2 more for the same pension.

If their employer were to use a relief at source scheme instead, no one would have to pay more than £8 for their £10 of pension. But most would not understand the difference between choosing a net pay or relief at source scheme.

When discovering this as pensions minister, I tried desperately to address it. But nobody was interested in helping the low earners.Officials said “It’s not much money”, which I found unacceptable.

Firstly, it may not be much money, but it could and should be theirs if their employer had chosen a different scheme.

Secondly, auto-enrolment contributions will quadruple and personal tax thresholds will rise, so the numbers of low earners and amounts they are losing will keep growing. I asked The Pensions Regulator to alert employers to the issue but was told it is not illegal to deny low earners this money, so it should not get involved.

I then highlighted that its template letters and website, designed to help employers choose a scheme and explain auto-enrolment, said workers would receive employer contributions and tax relief under auto-enrolment when this was not necessarily true. After many months I eventually persuaded it to change this but the wording was weak and fails to explain the issue clearly.

I met the people running the MasterTrust Assurance Framework, asking them to assess whether net pay schemes were being honest with employers and members about this issue as part of its seal of approval. But they too did not consider it an important issue.

I asked Treasury ministers to help. They initially replied that tax relief was being consulted on. Then I asked them to amend the rules or at least allow net pay schemes to reclaim the extra relief for their low earning members but was turned down every time. I did have one real success. Now:Pensions MasterTrust, which operates only on a net pay basis (Nest uses relief at source and The People’s Pension offers both) offered to pay the extra 25 per cent bonus to all low earners from its own resources. This was not widely publicised but it deserves high praise.

Since leaving Government, ministers just continually ignore my requests to solve the problem. All I can do is keep flagging it.

If or when these workers discover they have been charged more for their pensions than they should have been, what will they do? They had no control over the choice of scheme; it was arranged by their employer, who may have used an adviser or relied on regulator and Government guidelines. This could turn into another scandal. And it is only going to get worse. The sooner this issue is properly sorted, the better, and I would welcome help from you in pressuring for change.

Ros Altmann is former pensions minister



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There are 33 comments at the moment, we would love to hear your opinion too.

  1. “This could turn into a scandal”, is already a scandal.

    The fact that those in power deem it to be less important because, “it may not be much money” clearly don’t understand that the less money you have, the more you need and depend on it. That being so, they should not hold the position that they do as they are choosing to hurt the lowest earners, who are possibly also the most vulnerable.

    We need to consider these things when we vote.

  2. Surely the most efficient solution would surely be to ban net pay arrangements from auto enrolment schemes? The default tax relief arrangement should be Relief at Source (RAS) and Higher and additional rate payers will just have to manually claim their extra tax relief (as with any relief at source pension).

  3. It is a scandal but I can see why no-one can be bothered to do anything about it. All it means is that the people affected will forfeit slightly less in means-tested benefits.

  4. A crap scheme is still a crap scheme, with or without tax relief.

  5. Andy Robertson-Fox 20th July 2017 at 3:19 pm

    Ros Altmann knows all about Pension Scandals…like the one with index linking to the State Retirement Pension still being denied to 4% of all UK pensioners solely because of where they live….for most the loss is a damn sight more than £2.

    • They aren’t UK pensioners though are they? They’re Thai and Canadian pensioners who receive UK State Pensions.

      Everyone wants to be a citizen of the world these days until they discover that the world doesn’t pay state pension benefits…

      • Andy Robertson-Fox 21st July 2017 at 1:52 pm

        They are UK citizens who are pensioners who met the same conditions in contributing to the NI scheme as everyone else and seek pension parity with those who not only live in the UK but also those who live in an EEA country or one of fourteen others including the Philippines, USA and Macedonia and who are ındex linked.

    • Indeed and Brexit may well mean that those living in Europe will loose out too. If we are not in the EU why would European ex pats be treated any differently than those in (say) Australia or the USA?

      • Andy Robertson-Fox 21st July 2017 at 1:56 pm

        UK citizen pensioners in Australia do not get index linked but those in the USA do. Where one lives should be irrelevant – as is the case for pensioners from all other countries in the OEDC

    • At least Ros Altmann tried to change things and is still publicising things like this….that’s good for the industry and UKplc

  6. Paolo Buco nel Terreno 20th July 2017 at 4:36 pm

    This is something I have been flagging up on my travels around the country when helping business advisers and employers on AE. Whilst it may be a good move from NOW to put their hand in their pocket, my concern with NOW is:

    a) will they still be doing this when the tax relief is 1% (or potentially higher of Government decide to increase the current rates) when it is relatively ‘cheaper’ at 0.2%

    b) is it actually NOW that are paying this ‘error’ of judgment on not choosing relief at source and net pay, or is it the employer and the member themselves out of the costs/charges both are paying (in other words even non-tax paying members are contributing to their own tax relief

    Strikes me as more ‘smoke and mirrors’ and not very transparent.

    My worry is that this scheme (and any other net pay schemes that do something similar) create bad outcomes for members in the future (not good ones).

    • Its a decent move by NOW and I applaud it. Tax relief isn’t really 0.2% its 20% or an additional 25% of premium. I can’t see any case for HMG increasing tax relief on pensions – the mood music indicates it’d more likely be the other way…

  7. Yes, this isn’t ideal but i can see why it isn’t a priority. The lowest earning individuals probably won’t be AE’d anyway. Perhaps the solution is to make the minimum threshold for AE linked to the personal allowance.

  8. In support of Andy Robertson-Fox I have to agree and yes you have seen our argument before but we have to comment and hope that Ros Altmann is reminded that it still exists and will not go away unless she and others in Parliament do something about it. I receive less than half of my pension entitlement because of this Draconian law which is totally unjustified .
    Speak up Ros Altmann – you said you were gagged in the House of Commons but you at not gagged now, are you ?

  9. Robert Milligan 20th July 2017 at 5:41 pm

    what you need to do to make this equal is STOP Higher rate Relief Now, and use the savings to subsidise the Tax relief on non taxpayers contributions, Job Done.. And those who have just started bleating, I am also a higher rate payer! O Yes and stop the PCLS. So those who have funded a pension use it to provide an income upon which plus the state pension should see us get back the tax relief or in the very least, stop the Pension Credit pay outs to non tax paying retires

  10. i 20th July 2017 at 6:02 pm

    The current Government has been reclaiming the tax paid out over decades under pension freedoms. Following Gordon Browns Tax Raids on pension funds and successive chancellors the Tax Take form Pension funds back through the Government Agencies continues – uncontrolled unconstrained and Unchecked. Perhaps her Baroness could reprot these mass Tax Grabs by Governemtn ( using Harvard University Knowledge and Learning ) instead of the small loss of tax relief and miserable amounts alluded to in her article. Make the Government Accountable. This following the SERPS Scandals by Insurance companies – removing YEARS from Nat Ins requirements. In my opinion these activities are nothing short of Fraud – andcorruption by those who are Complicit by stealing of the peoples pensions. . . not just by Stealth but By successive Governments !

  11. Anne Puckridge 20th July 2017 at 6:52 pm

    Ros Altmann also highlighted another pension injustice before she was made Pensions Minister: the Government’s brutal Frozen Pension Policy. She then did a complete U-turn immediately she was appointed. Her extravagant claims of her ‘desperate’ efforts as expressed in this article lack any degree of conviction or sincerity.

  12. This just shows the blatant contempt and disregard for fairness when it comes to pensions shown by the Pensions Regulator I have taken this from their website “The Pensions Regulator (TPR) is the public body that protects workplace pensions in the UK. We work with employers and those running pensions so that people can save safely for their retirement” so the fact that they are not concerned about this scandal gives a lie to that statement. Do not give up Ros in demanding fairness for the vulnerable pensioners, we realise now your hands were tied when you took on the pensions minister role, but now you can once again demand change…..please continue to support ending the frozen pension scandal, an injustice that the UK government have got away with for decades and once EU expats are assured of continued uprating the demand to end this outrageous discrimination of the 4% who are victims of this scandal should be heard all around Westminster and should be a source of shame to everyone who believes to steal from pensioners is abhorrent.

    • Nobody made people emigrate.

      • Andy Robertson-Fox 21st July 2017 at 4:49 pm

        The silly argument rears its head once again!
        It is not a question of being made to emigrate or not. These pensioners made NI contributions during their working lives on the same terms and conditions as everyone else but, solely based on the illogical policy, now are denied the right to index linking to their pension. A rıght afforded to everyone else…including many others who are also abroad. It is a case to end this dıscrimination through world wide parity.

        • Like I said,, nobody made them emigrate. And as you say, “The silly argument rears its head once again”.

          • Andy Robertson-Fox 24th July 2017 at 1:47 pm

            It would appear that you are making it seem that the fault lies with the pensioner, not with the government, but if you read on I point out why “nobody made them emigrate” is a silly argument because it is irrelevant.

      • I don’t think that is a fair reply. If you had put your own money anywhere else, with a supposed guarantee, you would get it back no matter where you lived.
        Also, you don’t have any choice but to pay into the state scheme through your taxes and NI.

  13. We took this in to account when advising on scheme selection back in 1998 when I set up our first group scheme for an employer which had low paid staff. Most took their pension pot unadvisedly using trivial pension rules. Only loser was HMRC but happy

  14. I’ve been saying this for a couple of years now.
    People think the figures aren’t that big?
    Consider somebody paying their own contributions of £2880 a year, either as regular premiums or to top up existing AE contributions. They’ll lose £720 a year. Ten years? £7200 plus growth. If the plan has been recommended by eg. payroll or an accountant, will their PI cover a claim? Any given most low paid workers are female, there are grounds for a sex discrimination case, along the lines of Coloroll.

    • Good one Mike. Hence why we did as NET pay. Class actions looming for some firms I think and some very big.

    • We did GPPs for staff of care and children’s homes (mainly woman and often low paid, but it gave them independence from husbands pensions, single charged plans from net pay which when trivial pension limit when to £18k enabled taking most funds year after early retirement a GROSS payment)

  15. It appeareth the Barren ness is trying to pool the wool over our eyes by tickling the small trouts – and avoiding the Real Issues – Pensions are a mess Pensions have been a Mess and Pension continue to be a mess – and after the Tax Man taketh his proportion large insurance companies and Banks taketh their proportions – ignoring the reason why people saved in the first place. Osborne’s reckless Tax Grab through Pension Tax reclaims leave people disillusioned and disappointed . Why Would someone Save ? For pensions saving the Governments of the day giveth and the CONservatives taketh it away – and spend it on HS2. If they could spend money on the line form London to St Albans we could save FIVE minutes at much lower costs.

  16. Robert Milligan 11th August 2017 at 4:03 pm

    Simple, abolish Tax Relief on all pensions,,, “o” yes its an ISA, Why harp on “Mostly Women” She’s well off, so everyone has the same start in life,, Just get on with it and look after yourself, after all we all have from 18 – 68 to set aside sufficient assets top provide fro retirement, if they can not be bothered, hey ho!!

  17. Pensioners living abroad do not contribute to the UK economy so why should they receive ‘triple lock’ increases? Their NI contributions enabled a pension at the date of their retirement, if they ‘choose’ to emigrate and spend in other countries, to build up their economies, why should the UK taxpayer have to give them annual increases from the increase in the UK economy?

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