Lower earners’ pensions are nearly £150m ($208m, €172m) worse off due to a “sloth-like” policymaking process, advice giant Quilter has revealed.
In November 2019, the Conservative government recognised there was a problem in the tax system that put lower earners at a disadvantage.
According to Quilter, this “quirk” means that many people on lower pay do not receive tax relief into their pension pots because their employer put them in a ‘net-pay’ scheme, whereas workers who are in a ‘relief at source’ scheme receive the top up.
Since 2019, £142m has been lost for lower earners who are not able to receive the tax relief.
The issue was first raised in parliament in 2016, and since then people missed out on £265m.
If policy is not passed or at least fixed for another year, the figure will grow by an additional £95m, Quilter said.
‘Millions are lost’
Women seem to be the most impacted by the issue as they account for approximately two-thirds of those not being able to claim tax relief on their pension.
A consultation on the matter was unveiled in July 2020, but Quilter said there hasn’t been an update on this and is urging the government to act fast.
Ian Browne, retirement planning expert at Quilter, said: “We all know the feeling of never-ending to-do lists and a bursting inbox. However, few of us are responsible for the retirement funds of the nation and costing the lowest earners £150m by failing to tick something off.
“Yet, the government doesn’t seem to comprehend the cost of their sloth-like policymaking. The net pay issue is not one that has recently come to light and every year the government fails to rectify the situation millions more are lost.
“On top of the growing gap created by the government, we are seeing an increase in multi-jobbers. Many people who have several jobs with lower pay will miss out on the government top-up more than once and it will accumulate to have a dramatic impact on their future prosperity.
“The chancellor appears keen to create a name for himself and fixing issues and quirks in the system that are unfairly impacting working people, then the net pay issue should be high on their agenda, even if it isn’t dominating front pages.”
