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.”
