On the go: Women are being unreasonably affected by the net pay anomaly, according to government data, as pressure mounts on politicians to act.
Roughly three-quarters of the 1.3m low earners who missed out on pensions tax relief in 2016-17 due to being in a net pay arrangement were women.
Campaigners say these pension rules are unfairly targeting low-paid women and causing them to miss out on a top-up on their pension contributions.
In comparison, HM Revenue & Customs revealed a total of 6.8m individuals made workplace pension contributions via relief at source in 2016-17, the latest year in which data is available. About 45 per cent of these individuals are estimated to be female.
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, only accessible through a handful of companies.
The majority of pension providers in the market instead operate a net pay arrangement, leaving low earners missing out on a valuable top-up.
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.
In its election manifesto, the government promised to fix the tax relief anomaly affecting low earners, but it is unknown whether any proposals will be included in next month’s Budget.
Former chancellor Philip Hammond has previously said it was not cost-effective for the Treasury to act on this anomaly.
Gregg McClymont, director of policy at The People’s Pension, said: “Tax relief should provide an incentive for people to save and help top up their pension pots, but this flaw is depriving those who most need this boost to their savings.
“It threatens to damage public confidence in auto-enrolment and only serves to keep the gender pensions gap wide open.
“Fairness demands this issue is fixed. We’re calling on the government to deliver on its pledge to review this issue and work to ensure all savers receive the tax relief they’re entitled to.”
