Estimated 1.75 million workers missing out on £60m in tax relief amid net pay 'scandal'

Kim Kaveh
clock • 1 min read

An estimated 1.75 million people are missing out on £60m in tax relief on their pension contributions in 2019/20, as the net-pay anomaly continues, Royal London estimates.

This figure was calculated after the insurer put forward a Freedom of Information request to HM Revenue and Customs. The tax office's response showed 1.33 million earning below the personal allowance were saving for retirement in a net-pay arrangement in 2016/17, when the income personal tax allowance had risen by £400 to £11,000.

Therefore, the insurer estimated that the extra £400 on the personal allowance - alongside the rollout of AE - brought an extra 110,000 people into the net pay arrangement.

Savers whose earnings fall below the personal tax threshold and are members of net-pay schemes lose out on 20% tax relief, but this is automatically applied to savers in relief-at-source schemes.

The allowance has since risen by another £1,500 for the 2019/20 tax year, and more people have been brought into pensions through auto-enrolment (AE). Royal London predicted, as a result, another 412,500 will be affected by the net pay arrangement in the 2019/20 tax year. 

Director of policy Sir Steve Webb 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."

The estimate comes as ministers were quizzed by the Work and Pensions Committee (WPC) about the issue on 2 April - noting they did not know how many people under a net-pay arrangement were affected by the current tax relief system.

See more: Five pensions changes for the 2019/20 tax year

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