On the go: Workplace pension provider Now Pensions will be topping up pension pots of non-taxpayer members for the fourth year, after seeing claims double in 2017-18, when compared with the previous period.
The master trust, with 1.7m members, operates a net pay arrangement, which means savers miss out on a tax relief top-up offered by government to individuals enrolled in a relief at source scheme.
Now Pensions will make a contribution of the amount of lost income tax relief directly into the member’s pension pot, who will have to file a claim form authorising the master trust to check the data with HM Revenue & Customs. Members have until January 31 2020 to submit a claim.
Between 2016-17 and 2017-18, the master trust saw a 100 per cent increase in claims from its members.
Now Pensions officials said a lot of this growth is down to increased awareness among its participating employers, whom the provider “enlists to help to spread the word to members”.
The maximum top-up members have received has also increased over the years; while in 2016-17 members got an extra £10.25 into their pension, in 2019-20 this value will increase to £63.64.
This is due to the increase in the auto-enrolment minimum contributions, which hiked to five per cent from 1 per cent in the past two years.
Members of pension schemes who do not pay income tax are granted basic rate tax relief of 20 per cent on pension contributions up to £2,880 a year. In practice this means HMRC will top up a net contribution of £2,880 to a gross £3,600.
But this tax relief is only available where the pension scheme operates on a relief-at-source basis, which is only accessible through a handful of companies. It is not available for schemes that operate a net pay arrangement – the majority of pension funds in the market.
The difference between these two arrangements has become more noticeable since the income tax personal allowance increased to £12,500, which is above the auto-enrolment minimum threshold of £10,000.
While former chancellor of the exchequer Philip Hammond said it was not cost effective for HM Treasury to act on this anomaly, the Conservative party has proposed to fix the problem.
Adrian Boulding, Now Pensions director of policy, has presented a solution to government proposed by the Low Incomes Tax Reform Group, an initiative from the Chartered Institute of Taxation.
This fix which would see HMRC introduce an extra step in the annual assessment it carries – the P800, which uses real-time information provided by the employer – in order to calculate whether or not an employee has paid the right amount of tax.
