The government has been criticised for failing to address the net-pay taxation anomaly on some defined contribution pension schemes.
It comes as the Treasury confirmed earlier this month to the Financial Times that it was “looking at the opportunities provided by the move to a modern digital tax system to tackle any differences of treatment in provision of tax relief for pensions”.
However, in today’s Budget, Chancellor Philip Hammond failed to mention the issue. The People’s Pension director of policy, Gregg McClymont, said the government has “missed the perfect opportunity to tackle the net-pay anomaly”.
“Currently, more than a million low earners could be missing out on 20 per cent tax relief through no fault of their own. 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,” he said.
Aegon pensions director Steven Cameron noted that the increase in personal tax allowance to £12,500 makes the issue “even more urgent as more people will be affected”.
The failure to address the issue was described as "extremely disappointing" by Now Pensions director of policy Adrian Boulding.
“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,” he said.