Processes for payment of pensions tax relief to be examined
02 July 2018
The government is set to take a close look at the current pension tax relief system, the parliamentary under-secretary of state for the Department for Work and Pensions revealed in a recent speech to the House of Lords.
According to Professional Pensions, Baroness Buscombe, the parliamentary under-secretary of state for the Department for Work and Pensions said the government could overhaul the system it if felt it was beneficial to do so. She said:
"Alongside further work on the automatic-enrolment changes outlined in the review, the government will examine the processes for payment of pensions tax relief for individuals to explore the current difference in treatment to ensure we can make the most of any new opportunities that emerge, balancing simplicity, fairness and practicality while engaging with stakeholders to seek their views.”
Currently, under the net payment system, which is handled through an employer's payroll, those earning less than the taxable employment threshold of £11,850 do not receive tax relief on their pension contributions. Those earning enough to qualify them to be a higher-rate taxpayer automatically have an additional 20% tax relief added on.
An individual in a relief at source scheme, however, which includes people paying into a personal or group personal pension or a self-invested personal pension, automatically receives tax relief of 20%, even if they are earning less than the £11,850 threshold.
Individuals in the higher-rate bracket risk missing out, however, on a further 20% of tax relief under the relief at source system if they are unaware they have to fill in a box on their tax return, as the additional 20% relief is not automatically applied.
Now Pensions director of policy Adrian Boulding said the current set-up caused "ill-will in the market", with one system appearing to disadvantage low-earners, and one appearing to disadvantage high-earners.
Read the full news item from Professional Pensions.