The Conservative manifesto published on Sunday (24th November) contained promises to tackle two problematic areas of pension tax relief affecting low-paid and high-paid workers. But there was a disappointing lack of detail on how this would be done and when changes would be made, according to Steve Webb, Director of Policy at Royal London.
The two areas were:
- Dealing with the anomaly whereby workers earning under £12,500 may miss out on pension tax relief if their scheme or provider uses the ‘net pay arrangement’ method of delivering tax relief rather than the ‘relief at source’ method;
- Responding to the issues in the NHS around senior doctors facing large and unpredictable tax penalties for additional work because of the ‘tapered annual allowance’;
The issue around low paid workers has been raised by campaigners for several years, with a recent Royal London FOI reply suggesting that around 1.7 million workers are missing out. Until recently the Government has said that it could not find a cost-effective solution.
On higher paid workers, the government announced last week that it would respond to the ‘taper tax’ issue affecting doctors by covering their annual allowance tax charges for 2019/20. However, a letter from the Health Secretary has said that this could amount to ‘tax planning’ and ‘tax avoidance’, so it is unclear where doctors would stand if they take advantage of this offer. The proposals do not cover other workers affected by the tapered annual allowance.
Commenting, Steve Webb, Director of Policy at Royal London said:
‘It is welcome that the Conservative manifesto refers to two of the various anomalies in the pension tax relief system. On low-paid workers, the manifesto represents a welcome shift in position after the government has refused to act for several years. But on the tapered annual allowance, the measure proposed is far too narrow and may not even work. The tapered annual allowance affects far more people than senior NHS clinicians and creates complexity and uncertainty in the tax system. The best solution would be to abolish it outright’.
About Royal London:
Royal London is the largest mutual life insurance, pensions and investment company in the UK, with assets under management of £139 billion, 8.6 million policies in force and 4,348 employees. Figures quoted are as at 30 June 2020.