An announcement today by the DWP that the threshold for enrolment into a workplace pension is to be frozen at £10,000 means that hundreds of thousands more workers are set to face a ‘lottery’ about whether or not they qualify for pension tax relief, according to Steve Webb, Director of Policy at Royal London.
At present, the threshold for automatic enrolment is £10,000 and the personal allowance for income tax is at £11,850. Whether or not workers between these two thresholds get tax relief on their pension contributions depends on the ‘lottery’ of the scheme their employer has chosen. Pension schemes which use the ‘relief at source’ system deliver tax relief to non taxpayers, but schemes which use the ‘net pay arrangement’ system generally do not. Latest estimates from HMRC suggest that around 1.22 million workers may be affected by this issue and missing out on tax relief.
For 2019/20, the Government has announced:
- The tax allowance will rise from £11,850 to £12,500;
- The automatic enrolment threshold will stay frozen at £10,000;
This increases the band of earnings over which workers are affected by around 35%. This could easily add nearly half a million to the numbers drawn into this bracket.
Commenting, Steve Webb, Director of Policy at Royal London said:
“The gap between the point at which people are enrolled into a pension and the point at which they start paying tax will become a chasm in 2019. This means hundreds of thousands more workers will find that whether or not they get tax relief will depend on the lottery of what pension arrangement their employer has chosen for them. Government cannot keep kicking the can down the road on this issue. It now needs to be resolved as a matter of urgency”.
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About Royal London:
Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June 2018.