Chancellor's Budget: Pension boost for low earners as Government address net pay anomaly

Clare Moffat, Head of Intermediary Development and Technical at Royal London, comments on the Government’s announcement in the Budget that there will be a top-up for low earners in pension schemes using the net pay method of receiving tax relief:

“This announcement is a welcome one particularly for women who are impacted most. However, the change won’t be until 2025-26 in respect of pension contributions made from 2024-25 onwards. For many people the amount of tax relief which they would receive in a net pay or a relief at source scheme would work out the same but this isn’t the case for lower earners. Someone in a relief at source scheme, who pays no or little income tax, will still receive 20% tax relief which is added to their pension. But someone who earns the same in a net pay scheme would receive no tax relief for any amount under the personal allowance. This means that they would have less at retirement.

“Solving this issue in relation to low earners and the two main ways to receive tax relief was never going to be simple. However, this announcement acknowledges that a change is necessary. According to Government statistics, 75% of those impacted are women and there is already a large gender gap in relation to pensions with women having less at retirement than men.  Often this is due to the fact that they have worked part time in lower paid jobs and if they have been in a net pay scheme, they might have received little or no tax relief.”