The government has reiterated its position on the net pay anomaly, after it said that it is “not cost effective” to reform pensions tax relief which could see workers miss out on up to £60m a year.

Responding to questions from the Treasury Committee last Friday, 26 April, Chancellor Philip Hammond said that he is “not sighted to small detail”, but that it would be a “challenge” to intervene in a cost-effective manner where it cannot be done automatically.

The anomaly stems from the difference between the income tax threshold, which recently rose to £12,500 a year, and the auto-enrolment thresholds, which remained at £10,000.

Savers earning less than the personal allowance will not be credited with tax relief.

Hammond told the committee: “I have to tell you that I am not sighted on the detail. The Economic Secretary [John Glen] is right that the challenge for us in anything around auto-enrolment or small-scale savings is to make an intervention cost effective where it cannot be done automatically, and you have already explained why it cannot be.”

Earlier this month, Royal London estimated that roughly 1.75 million workers could be missing out on the tax relief, which can range from £35 to £720 a year.

However, research from Now Pensions last year found that individuals could be missing out on as much as £64 per year, suggesting the total figure could be much more.

According to the mutual insurer, around three quarters of the workers are women in low-paid or part-time work.

The issue stems from workers whose employers have chosen a Group Personal Pension arrangement, which benefits from a relief at source method, while workers in most trust-based occupational schemes get no tax relief.

Last October, the government rejected calls from the Treasury Committee to fundamentally reform pensions tax relief after it said there was “no clear consensus” to do so.

Share Story: