I’ve recently returned from yet another “What does Brexit mean to you” event and as...read more
Around three quarters of those missing out on pension tax relief are women.
Around 1.75m of the lowest paid workers – most of them women – could be missing out on around £60m per year in pension tax relief, according to the Royal London.
Based on a Freedom of Information reply issued on Friday, Royal London believes around half a million more people than previously thought may be missing out on pension tax relief.
The issue arises for workers who have to be enrolled into a pension because they earn more than £10,000 per year, but who are earning under the income tax threshold – now £12,500 per year. It is thought that around three quarters of these workers are women in low-paid or part-time jobs.
The Royal London says whether or not these workers benefit from pension tax relief depends on what sort of pension arrangement their employer has chosen. Workers whose employer has chosen a Group Personal Pension arrangement benefit from tax relief because tax relief is given through the ‘relief at source’ method. But workers in most trust-based occupational pension schemes (and in most public service pension schemes) get no tax relief because tax relief is delivered in a different way which excludes those earning under the tax threshold.
Steve Webb, Director of Policy at Royal London, said: “It is a scandal that so many low-paid and part-time workers are missing out on tax relief on their pension contributions. This is the group that most needs a boost to their pension savings. These new figures suggest that the scale of the problem is much bigger than previously thought. It is simply not good enough for ministers to say that it is not cost-effective to deal with this problem”.
Experts says employers need to make the pros and cons of their pension schemes clear to low-paid and part-time workers so they can make an informed choice about how they save for the future.
As of April, the minimum contributions for those on auto-enrolment pension schemes have increased for both employers and employees – up from 2% to 3% for employers and from 3% to 5% for employees. The change will particularly impact the lowest paid who will see more money going out of their take-home pay unless they choose to opt out of the scheme. Auto-enrolment was introduced to provide employees with a long-term savings plan for when they retire. The pensions of women are often lower due to career gaps, part-time working and lower pay.