Around 1.75 million low-paid and part-time workers could be missing out on pension tax relief, half a million more than previously thought, according to new data.
Royal London has estimated that £60m is being given up by the workers caught between the threshold for automatic enrolment in a pension scheme – £10,000 – and the income tax threshold – £12,500 a year.
The provider notes that while workers in group personal pensions will benefit from “relief at source” calculations, most trust-based occupational pension schemes and public service pension schemes do not facilitate pension tax relief to those under the income tax threshold.
Previous estimates from the Low Income Tax reform group put the number of affected workers at 1.22 million for 2015/16.
A Freedom of Information Act request from Royal London asked HM Revenue and Customs for further information on 2016/17 figures, finding the number had risen to 1.33m.
However, Royal London notes that the additional 110,000 workers caught occured as the personal tax allowance rose only £400 from £10,600 to £11,000 in 2016/17.
Not only has automatic enrolment been rolled out to more workers now, but the personal tax allowance has also risen by another £1,500 to £12,500.
If the £400 increase in allowance added 110,000 to the number of individuals affected, Royal London projects that another £1,500 increase would results in an impact nearly four times as great, adding 412,500 workers.
The result is that by 2019/20, 1.75 million low-paid workers could miss out on pension tax relief due to the way their schemes are set up.
The figure for £60m forgone comes from ministers telling a Department for Work and Pensions select committee last week that the average worker affected by this trap loses £35 a year.
Royal London director of policy Steve Webb: “It is a scandal that so many low-paid and part-time workers are missing out on tax relief on their pension contributions. This is the group that most needs a boost to their pension savings. These new figures suggest that the scale of the problem is much bigger than previously thought. It is simply not good enough for ministers to say that it is not cost-effective to deal with this problem.”