Auto-enrolment scheme Now: Pensions is to top-up up savings of its non-taxpaying customers who are missing out on tax relief because of an administrative quirk.
The provider – like most occupational and trust-based schemes – uses a net pay model of distributing tax relief on pension contributions.
However, because the starting rate of income tax has risen above the £10,000 auto-enrolment threshold members are losing out.
Pensions minister Ros Altmann has persistantly hit out at schemes using net pay instead of the alternative, relief at source, that does pass on tax relief to non-taxpayers.
It was expected radical tax relief reform was going to solve the problem, but the Chancellor has shelved the plans. Now: Pensions had been working with HMRC on a ‘sweep up’ solution but decided to act now.
Members will need to submit a claims form through the Now: Pensions website giving the tax office permission to divulge tax details to the provider for the 2015/16 tax year.
Funds will be credited by the end of March 2017.
Chief executive Morten Nilsson says: “Through no fault of their own non taxpayers in net pay schemes are being disadvantaged because of the increase in the nil rate income tax band. We are talking to the Treasury and HMRC to find a way to resolve this anomaly over the long term but, in the interim, we will put our hands in our pockets to top up these members’ pension pots.
He adds: “We believe that net pay offers a number of benefits to savers and if we can agree a work around with HMRC we’d be keen to do this in order to avoid the upheaval and expense of moving to relief at source.”