Philip Hammond has failed to address the net-pay anomaly affecting lower-paid earners who are missing out on tax-relief on their pension contributions in Monday’s Autumn Budget.
It comes despite industry heavyweights urging the chancellor to take action on the net pay tax-relief anomaly earlier this month, which included the likes of former pensions minister Baroness Ros Altmann, and Sir Steve Webb – who is now director of policy at Royal London.
Now Pensions director of policy Adrian Boulding said it was “extremely disappointing” that the chancellor has chosen to ignore the 1.2 million low-earners in net pay schemes who are missing out on tax relief through no fault of their own.
“One of the headline benefits of saving into a workplace pension is when you pay in, the government pays in too. But, in net-pay schemes, lower earners who don’t pay income tax don’t receive the government top up they would have received had they been paying into a ‘relief at source’ pension scheme.
“This isn’t just a quirk of the tax system but something that affects working people’s living standards. The government must act urgently to end this injustice ensuring that all low earners receive tax relief regardless of which type of scheme they are in. We will continue to press for action until our voice is heard.”
The People’s Pension director of policy Gregg McClymont said the government had missed the “perfect opportunity” to stop a “scandal waiting to happen at a time when maintaining public confidence in auto-enrolment is crucial”.
“It’s unsustainable for government to automatically enrol millions of people into pensions and not ensure that the system works fairly on everyone’s behalf.”
In July, the Treasury select committee called for “fundamental reform” of the tax relief system, including introducing a flat rate and replacing the lifetime allowance with a lower annual allowance.
Barnett Waddingham senior consultant Malcolm McLean added: “There was a disappointing lack of detail about future plans for pensions in this year’s Budget announcement, with many areas only outlined for consultation and discussion over the next 12 months.”
He added that these will no doubt be addressed in the bumper pensions bill, promised by Guy Opperman, which he claimed will leave pensions untouched for years.
“Mr Hammond failed to follow up on his earlier statement that ‘pensions tax relief is eye-wateringly expensive’, which may mean he will wish to come back on this at a subsequent budget. However, for now there appears to be no change in either the rate of tax relief or the allowances.
“Bringing the increase of personal tax allowance forward a year will be beneficial to low earners, but rather perversely it will also bring even more people into the ‘Net Pay’ arrangement, causing them to miss out on valuable pensions tax relief. This is an ongoing problem and a solution is urgently required.”