Master trust Now: Pensions has written to Chancellor Philip Hammond as part of a petition to end a loophole that sees 1.75m savers miss out on pensions tax relief.
The letter from Now: Pensions chief executive Troy Clutterbuck to Hammond coincides with the launch of a campaign to make the way pension providers administer relief fairer.
Pension providers administer tax relief for their customers in two different ways.
The relief-at-source method automatically claims basic rate tax relief (equivalent to 25 per cent of each worker’s contribution) from HM Revenue & Customs, adding it to the pension pot.
The alternative net pay method adjusts for tax relief before contributions are paid, whether basic or higher rate.
Experts such as former pensions minister Ros Altmann have campaigned for the net pay arrangement to be changed as they argue it penalises lower paid workers.
Altmann has noted net pay severely disadvantages all workers earning between £10,000 and the £11,850 personal tax threshold, forcing them to pay 25 per cent more for their pensions, as they are denied basic rate relief they would have in a relief-at-source scheme.
In the letter Clutterbuck lays out a case for changing net pay so relief on contributions can be equalised across pay bands.
It cites HMRC estimates for 2016-17 that shows 1.33m people were affected by this loophole when the income tax personal allowance was set at £11,000.
Now: Pensions estimates the rise of the personal allowance to £12,500 means around 1.75m savers are now affected by the loophole that equates to £111m lost in tax relief.
Clutterbuck says: “To raise awareness of this issue and urge government to act to end this loophole, we are supporting a parliamentary petition which calls for urgent government action to ensure that all low earners receive tax relief regardless of which type of scheme they are in.
“Without government action, there is a real danger that confidence in pension saving, and auto-enrolment, will be undermined.
“It is vital that government heeds the call to act now to end this loophole which is undermining a successful government policy and costing low earners up to £111m every year in reduced take home pay.”