“We’re pleased that the government has started to look at ways of resolving the ‘net pay anomaly’. Low earners auto-enrolled into occupational schemes, using ‘net pay arrangements’ will lose out on a significant amount of money over their working lifetime if this issue isn’t resolved quickly. A disproportionate number of those affected will be women on low incomes including those on part-time wages.
“All of the solutions put forward come with challenges and increased costs, with no easy solution. But it’s essential that all those currently losing out do receive their Government top-up. The solution has to be around levelling up, not down, meaning one option of removing tax relief for all low earners is completely unpalatable. Lower earners saving in schemes using relief at source currently benefit from the 20% tax top-up. Removing this will mean lower take-home pay for this group and could lead to a higher opt-out rate, with the loss of employer pension contributions impacting their financial futures.
“We strongly believe that the only systematic way to resolve the net pay anomaly is for HMRC to use the data it already collects, expanding this if necessary, to pay low earners saving in net pay schemes a bonus using real time information (RTI), without requiring this group to make a claim. This is the most workable, least disruptive solution for these low-earners and their employers.
“A similar RTI solution could also be used to provide an automatic correction for schemes using relief at source, such as where devolved nations’ income tax rates are different from the rest of the UK, and for higher rate tax payers, allowing these groups to automatically receive their full pension tax relief entitlement. Having the potential for economies of scale make RTI adjustments more cost-effective, viable and benefiting more pension savers.”
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