Working And Caring ? Be WARY Of The Pension Fund Contribution Tax Relief Trap!

Daily Chuckle for this one :

Hundreds of thousands miss out on pension tax relief top-ups | Daily Mail Online

**_Why are so many women ( And men ??? ) being sold short on their pensions ? Hundreds of thousands miss out on vital top-ups.

More than 1.22 million workers don’t receive tax relief on pension contributions.

It is estimated that women account for around three-quarters of those affected.

This is due to a glitch in the way some workplace pensions are run._**

Hundreds of thousands of women are missing out on vital top-ups to their pension savings.

Official figures show that more than 1.22 million low-paid workers are not receiving tax relief on their pension contributions and are collectively £78 million poorer as a result.

It is estimated that women account for around three-quarters of those affected, according to the latest HM Revenue & Customs (HMRC) figures.

The extent of the problem was revealed when former pensions minister Ros Altmann asked Parliament to break down how many of the low-income workers losing out were women.

Currently, anyone earning more than £10,000 is automatically enrolled into their company’s pension scheme.

Employees contribute 3 per cent of their earnings to the scheme, which will rise to 5 per cent in April next year. Employers make a 2 per cent contribution, increasing to 3 per cent next year.

Workers are then entitled to tax relief on these pension contributions. Non-taxpayers or basic-rate taxpayers get relief at 20 per cent, while higher-rate earners can claim 40 per cent.

So, for every £100 that goes into their pension pot, it only costs £80 and £60 respectively.

**_However, a glitch in the way some workplace pensions are run means that many employees who do not earn enough to pay tax will not get this top-up.

Experts say it is down to HMRC to fix the problem.

There are two types of pension scheme. Under the first — known as ‘relief at source’ — pension contributions are deducted after tax is calculated. HMRC then sends tax relief back to the scheme at the basic rate of 20 per cent and this is added to all employees’ savings.

So, if someone who does not pay tax saved £80, they would actually get £100 paid into their pension pot.

Higher-rate taxpayers must claim their extra 20 per cent tax relief back from HMRC in their tax return.

Under the second scheme — known as ‘net pay’ — pension contributions are taken before tax. Individual savers then receive tax relief later, at whatever rate of tax they pay.

This means that workers who do not pay tax miss out on the 20 per cent top-up they would have got if they had been part of the other type of pension scheme.

So, for example, they will not get the £20 top-up on their £80 contribution. And there is nothing they can do to claim this back.

While some of the biggest workplace pensions, such as Nest and The People’s Pension, run relief at source schemes, a fifth of workers who do not pay tax are enrolled in net pay schemes, according to HMRC’s figures.

Experts say that employers may choose net pay schemes as they have lower administration costs.

At present, workers can earn up to £11,850 without paying any tax.

And when the basic tax-free personal allowance rises to £12,500 next April, even more people will lose out because the number of workers who do not pay tax will increase.

It is estimated that those affected will be left around £64 a year out of pocket — £78 million in total._**
**_Steve Webb, the former pensions minister and director of policy at Royal London, has accused HMRC of exposing workers — predominantly women — to a ‘lottery’ and called on the taxman to fix the problem, so that people do not lose out.

He says: ‘HMRC must be proactive. It is the Government’s job to develop a system that works for everyone.’

Troy Clutterbuck, chief executive of Now: Pensions, a workplace pension provider, says: 'It is not right that some low earners are missing out on a government top‑up simply due to the type of pension scheme they are in.

‘Ministers urgently need to take action to address this inequality.’

Anne Fairpo, chair of the Low Incomes Tax Reform Group, says that non-taxpaying workers have been hit with a ‘triple whammy’.

Ministers are taking no action to correct the tax disadvantage; more people will be affected by it; and when employee auto-enrolment contributions increase from 3 per cent to 5 per cent next April, it will have a bigger impact, says Miss Fairpo.

She adds: 'The Government is now saying that this is in the hands of employers to do something about.

‘But we understand that most employers are choosing pension schemes blind to the net pay problem and there is no specific outreach or educational work being done by the authorities to counter this.’

A spokesman for HMRC says: ‘To date, it has not been possible to identify any straightforward or proportionate way to align the tax relief available under net pay and relief at source.’_**

A classic Joe / Josephine Public type comment from the section at the bottom :

It’s not a ‘top up’ it’s tax relief. You can’t get relief on a tax you are not paying. What is being suggested here is that tax payers should further subsidise non taxes payers by enabling them to get a pension credit in lieu of tax relief.

Perhaps the author / authoress of the classic family / kinship carers comment :


If they chose to care , why should I have to pay them to do so ?

Can always rely on the Daily Chuckle for that daily chuckle ?

If they chose to care , why should I have to pay them to do so ?

I guess the answer to that is that if they DON’T choose to care, but the parent NEEDS care and hasn’t got a house/flat oftheir own, then we the taxpayers will have to pay for the parent to be in residential care anyway…

That said, it’s a valid point I guess, the one about it being tax RELIEF…maybe wives should be able to ‘assign’ their pension tax relief to the working/taxpaying spouse???

I suspect, though, that the days of the tax relief on pensions contribs are numbered - and I doubt it will be compensated for by not taxing pensions when we finally get to claim them!!!

The " Delicate " subject of tax relief on pension contributions … for those who do NOT earn enough to pay Income Tax … vast majority of family / kinship carers working and able to claim CA … will rumble on.

( Yet most will see being paying Council Tax … separate thread ! )

As to the " Chose to care " comment … covered in the main CARERS STRATEGY GREEN PAPER thread … at some length.

Save going over there , classic response :

" Why should I have to pay through my taxes for you to receive NHS treatment free of charge ? "

… which takes you over to the SOCIAL CARE GREEN PAPER THREAD.