You are here: Home - Retirement - Retirement planning - News -

Workplace pension anomoly could see low earners miss out

0
Written by:
04/12/2018
Pension provider AJ Bell said new thresholds for workplace pensions could see lower earners miss out on valuable pension tax relief.

The Government has confirmed the key thresholds that will apply to workplace pensions for 2019/20. The earnings threshold for ‘auto-enrolment’ will be frozen at £10,000 for 2019/20. However, at the same time, the personal allowance is rising to £12,500. While this takes more people out of tax, it also means they could miss out on tax relief for their pensions.

AJ Bell points out that pension scheme savers are entitled to tax relief at their marginal rate. Members of ‘relief at source schemes’ get basic-rate tax relief of 20% automatically regardless of how much they earn, with higher and additional-rate taxpayers able to claim extra through their tax returns. Non-earners are entitled to receive tax relief on contributions worth up to £2,880.

However, some companies only take contributions from net pay for their workplace schemes. As such, tax relief is only provided to those who pay tax in the first place. Those earning above £10,000 (the auto-enrolment earnings trigger) but below the personal allowance (2017/18: £11,850; 2018/19: £12,500) miss out.

Tom Selby, senior analyst at AJ Bell, said: “The ‘net pay’ auto-enrolment problem looks set to get worse before it gets better as the gap between the point at which members pay income tax and the earnings level at which they get automatically enrolled widens from April next year.

“Over a million people in net pay schemes are already thought to have been affected by this anomaly, which robs them of the valuable tax relief they are entitled to when saving in a pension. It is particularly cruel that this flaw in the system affects the lowest earners.

“The DWP has now passed the buck to HMRC, hoping that the shift to becoming ‘one of the most digitally advanced tax administrations in the world’ will provide a ready-made solution. But until that happens this pension tax injustice will continue.”

 

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Lockdown easing roadmap: the key dates for you

The Prime Minister Boris Johnson has outlined his roadmap for the nation coming out of lockdown, with the ambi...
Lockdown easing roadmap: the key dates for you

YBS launches best buy regular savings account

Yorkshire Building Society’s Loyalty Regular Saver pays interest of 3.5%, with savers able to deposit up to £5...
YBS launches best buy regular savings account

Leaseholders consider bankruptcy after MP vote

A plan to protect leaseholders from extortionate costs of fixing fire safety problems has been rejected in par...
Leaseholders consider bankruptcy after MP vote

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Money Tips of the Week

  • @YourMoneyUK Is this actually (very sadly) a bad news story @emmalunn? If the number of people qualifying for HTS i… https://t.co/bbWviJHfXx
  • RT @BoonBrokers: “Obviously, these practices are totally unacceptable and we would hope that most estate agents would be as horrified as us…
  • “Obviously, these practices are totally unacceptable and we would hope that most estate agents would be as horrifie… https://t.co/s8olBmyH9G

Read previous post:
Rail chaos: give worst-hit commuters a discount next year, say MPs

Commuters worst affected by the chaos on the railways in May should receive a discount on tickets next year, MPs...

Close