personal finance

Pension SHOCK: 1.75 MILLION workers could be missing out on £60m tax relief


The staggering number of savers potentially losing out on money which could increase their retirement pot stands at half a million more than previously thought by life, pensions and investment company Royal London. Around three-quarters of those most affected include workers on low-paid and part-time jobs and are most in need of boosting their pension pot. The problem occurs for future retirees who earn more than £10,000 annually, but less than the income tax threshold, which is currently £12,500 per year. Whether or not these workers benefit from pension tax relief depends on what sort of pension arrangement their employer has chosen.

In some arrangements, workers will benefit from tax relief where it is delivered through a method called “relief at source”.

Other schemes may exclude tax relief for those earning under the tax threshold.

The figure for those potentially missing out extra cash for retirement has jumped in recent years.

Around 1.33 million people were estimated to be affected in the 2016/17 tax year.

Since then, the personal allowance has increased alongside the continued roll-out of automatic enrolment bringing more people into workplace pensions.

This has led to Royal London increasing their projection to an estimated 1.75 million for 2019-20.

Sir Steve Webb, director of policy at Royal London said: “It is a scandal that so many low-paid and part-time workers are missing out on tax relief on their pension contributions.

“This is the group that most needs a boost to their pension savings.

“These new figures suggest that the scale of the problem is much bigger than previously thought.

“It is simply not good enough for ministers to say that it is not cost-effective to deal with this problem”.

The calculations from Royal London were made following a freedom of information (FOI) request to HM Revenue and Customs (HMRC) which gave estimates for 2016-17.

A Government spokesperson said: “We want people to be able to keep more of their hard-earned cash, and that’s why we’ve increased the personal allowance, benefiting millions of people.

“From this month, everyone contributing to a pension at the minimum automatic enrolment rates should see an increase in their overall pay plus pension savings.’

“The Government continues to look at the current differences arising from the two processes for paying pensions tax relief and how it can best balance simplicity, fairness and practicality in the way pensions operate.”



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