Millions of savers miss out on pensions tax relief
Ministers urge the government to review the tax in the UK
22nd July 2020 12:52
by Brean Horne from interactive investor
Ministers urge the government to review the tax in the UK
Some 1.75 million savers are not receiving pensions tax relief, according to a new report from MPs damning Government policy on the issue.
The huge group of low paid and part-time workers, earning less than the personal allowance, will not get tax relief on their pensions contributions despite being auto enrolled onto their company pensions.
Women are most affected and make up three quarters of this group.
Ministers on the Public Accounts Committee are calling for HM Revenue and Customs and the Treasury to overhaul the system and make it fairer.
Meg Hillier MP, chair of the committee, says: “Every Budget we get tax breaks announced like baubles hung on a tree, and they generate great headlines, but the truth is the Government has little clue about the value of an enormous cost to the public purse.
“It sometimes fails to predict with any accuracy what tax breaks will cost, and there is often too little interest in whether it delivers what it intended to."
Retirement savings experts welcome the findings and say an industry-wide consultation is needed.
Rob Yuille, head of long-term savings at the Association of British Insurers, says: "The report highlights the disparities in the current pensions tax relief system, particularly the net pay anomaly, which has led to 1.75 million savers not receiving pensions tax relief despite being automatically enrolled.
“Any future review into pensions tax relief policy must include industry consultation to ensure it is evidenced-based and avoids unintended consequences.”
What is pensions tax relief?
Pensions tax relief is a government top-up awarded to people who save for retirement.
Tax relief is paid on your pension contributions at the highest rate of income you pay.
For example, basic-rate taxpayers get 20% pensions tax relief while higher-rate and additional-rate taxpayers can claim 40% and 45% respectively.
This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.
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