A further step towards resolving pensions injustice for low-earners
The Low Incomes Tax Reform Group (LITRG) gives a cautious welcome to today’s publication of draft legislation1 aiming to address the issue of an estimated more than one million low-income workers (mostly women) not receiving a government incentive to save into their workplace pensions. The government’s intended scheme to give equivalent payments to those missing out on tax relief will enable those affected to claim an average estimated rebate of £53 a year.2
Today’s publication of draft legislation aims to put an end to a longstanding inequality in pensions tax relief, on which LITRG has been campaigning since 2018. The issue arises because workers contributing to net pay arrangement workplace pensions do not get tax relief on some or all of their pension contributions if they do not earn enough. By contrast, if their employer chooses to operate a relief at source (RAS) scheme, the worker obtains tax relief via a separate mechanism, even if they are a non-taxpayer.3
Kelly Sizer, Senior Technical Manager for LITRG said:
“This is another step closer to resolving a significant pension injustice affecting more than a million low-income workers.
“While this further progress towards levelling up the government’s contribution towards pensions savings for low-income workers is welcome, it remains unfortunate that HMRC will only be implementing payments to those affected from 2025/26 – backdated by one year to 2024/25. Given that this issue has been known about for many years, and the numbers affected have been steadily increasing4, we would have liked to have seen further backdating to at least the 2021/22 tax year when the proposed solution was announced.
“We will be carefully scrutinising the details to see exactly how the government intends their proposal to work and that there are no unintended consequences as a result of the way the draft legislation is worded.
“We will also be urging HMRC to consult closely on the practicalities of implementation. For example, it is feared that if people have to claim the payments, they may not do so and as a result will miss out. We therefore cautiously welcome the suggestion in the draft legislation that the primary onus will be on HMRC to make the payments to affected individuals.5”
