Campaigners urge government to act quickly on pensions injustice pledge
20 December 2019
The CIPP is amongst a group of leading pensions and tax experts calling on the Government to act quickly to deliver its manifesto promise to fix an unfair tax flaw. This flaw means around 1.7 million low-income workers (mostly women) are being unfairly charged 25 percent more for their pensions as a result of the way their employer pension scheme operates.
The Net Pay Action Group (NPAG), of which the CIPP is a member, is made up of pension providers, lawyers, tax specialists, payroll specialists, employers, consumer groups and policy experts. Other members of the Net Pay Action Group are: Low Incomes Tax Reform Group, Baroness Ros Altmann, AgeWage, NOW: Pensions, The People’s Pension, Pension and Lifetime Savings Association, The Investing and Saving Alliance, Association of British Insurers, Trades Union Congress, Age UK, Royal London, Smart Pension, The Pensions Administration Standards Association, Legal & General Investment Management, Ruston Smith.
The group has warned that this issue threatens to damage public confidence in auto-enrolment, widen the gender pensions gap, and let down those who need to increase their retirement savings most.
Many pension schemes provide the government-funded savings incentives (generally thought of as tax relief) through a system called relief at source (RAS), enabling lower earners to get the taxpayer-funded contribution to their pension automatically. But other pension providers add this money through a net-pay arrangement, which works well for most people, but not for those who earn less than the £12,500 threshold for paying income tax. These people miss out on the taxpayer-funded contribution to their pensions they would otherwise be entitled to and they end up paying it themselves.
As a first step, the Net Pay Action Group is calling on the Government to provide a firm timeline for its pledged review of the system and commit to implementing a solution. It is urging the Government to consider the action group’s simple and comprehensive solution which requires HMRC to use the data it already collects via PAYE real-time information (RTI) to identify, after the year-end, those who have contributed to an NPA scheme and who have not earned enough to obtain taxpayer incentive. HMRC could then provide that sum via the informal P800 process (or those in Self-Assessment could claim relief via their return). This would result in the extra money paid into the pension by these low earners being refunded to them, or that refund being offset against a tax liability. Further details of this proposal are set out here.
Commenting, former Pensions Minister, Baroness Ros Altmann, a member of the Net Pay Action Group, said:
“I’m delighted that the Government has committed to addressing this problem and hope urgent action will be taken to give these low-paid workers, including over one million women, the pension incentives they need and deserve.”
CIPP comment
The CIPP, along with other members of the NPAG, hopes that the government addresses the issue that they have pledged to fix sooner rather than later. The people that this anomaly effects are considered to be some of the most vulnerable, so it is imperative that a resolution is found to protect them and their pension funds. As always, as soon as there are any further updates, the CIPP will alert its members through News Online, so that you have the most up to date news relevant to payroll professionals.
Information provided in this news article may be subject to change. Please make note of the date of publication to ensure that you are viewing up to date information.