Low Incomes Tax Reform Group: LITRG welcomes solution to pension inequality for low-income workers

LITRG welcomes solution to pension inequality for low-income workers 

The Low Incomes Tax Reform Group (LITRG) welcomes today’s announcement from the Government which ends the injustice that over a million low-income workers (mostly women) lose out on pensions tax relief worth an average of £53 a year.1 However, the group stresses that the process for the top-up payments should be made as straightforward as possible, and expresses disappointment that the change will only come into effect from 2024/25.

In today’s long-awaited response to the Government’s call for evidence on pensions tax relief administration, the Government answered LITRG’s longstanding calls to resolve the inequality affecting workers in net pay arrangement (NPA) pensions schemes.2 The issue arises because such workers do not get tax relief on some or all of their pension contributions if they do not earn enough. By contrast, if their employer chooses to operate a relief at source (RAS) scheme, the worker obtains tax relief via a separate mechanism, even if they are a non-taxpayer. The solution involves providing the former group with a ‘top up’ payment to give them the same tax relief as those in RAS pension schemes.

Victoria Todd, Head of LITRG, says

“LITRG has been asking Government to take action to address this pension inequality for a number of years. Today’s announcement, which will see a top-up payment made to those affected, is therefore welcome. However, it is disappointing that this will only apply from the 2024/25 tax year and there will be no remedial action for historic tax years.

“While today’s publication is light on the full detail of how the new process will operate in all cases, it does suggest that those affected will need to take some sort of action to secure a top-up payment. This may well discourage people from accessing the top-up and we urge HMRC to ensure the process is accessible, simple and automated as far as possible. It is concerning that the Government’s estimates of the cost of this measure in its first two years is just a fraction of what it would be if there were full take up.

“We look forward to working with HMRC to consider the details of the proposal in the coming months.”