AJ Bell press comment - 20 July 2022
- Over 1 million low earners will be paid almost £64 million a year in total - £53 each on average – as the Government finally deals with a long-standing quirk in the pension tax system (1.2 million low earners to see boost in take-home pay - GOV.UK (www.gov.uk))
- However, solution will only be delivered in 2025 – a decade after the so-called ‘net pay anomaly’ first became apparent
- The net pay anomaly affects low earners who are automatically enrolled into a pension scheme and have their contributions taken from pre-tax pay (also known as ‘net pay’)
- People earning above the auto-enrolment earnings ‘trigger’ of £10,000 but below the personal allowance (£12,570 in 2022/23) who are members of net pay schemes risk missing out on valuable tax relief
- Three-quarters of those affected by the net pay anomaly are women, Treasury analysis suggests
- The Finance Bill 2022/23 confirms these members will receive top-ups directly to their bank accounts from 2025
Tom Selby, head of retirement policy at AJ Bell comments:
“It is a scandal that over 1 million of the UK’s lowest earners miss out on valuable pension tax relief as a result of the so-called ‘net pay anomaly’.
“While the Government deserves some credit for delivering a solution to the problem and confirming it in legislation, the first payment to those affected won’t go ‘live’ until 2025 – a full decade after the issue first came to light.
“What’s worse, it is those on the lowest incomes – three quarters of whom are women – who have lost out as a result of this administrative cock-up. Those people will sadly continue to lose out for the next 3 years.
“It’s important to note that for those affected, the money will be paid straight into their bank account rather than their pension. They could, of course, pay the money into their retirement pot if they wanted to.
“It will be vital as 2025 approaches that the Government ensures those affected are aware of what they need to do to claim the money back and that the process is as simple and seamless as possible.”
