Government delays in resolving the net pay issue has cost lower earners almost £150m in pensions funds, according to new calculations from financial adviser Quilter.
The wealth management company pointed out that the government recognised and pledged to address this issue in November 2019. Since this date around £142m has been lost, and in the last tax year, around 1.5m people lost just over £60 each on their pensions.
This issue was first raised in Parliament back in 2016. Since this data around £265m has been lost from pension funds as a result of this tax quirk, thanks to what Quilter describes as “sloth-like policymaking” from the government to sort out this problem.
Quilter says that over a number of years, these losses will mean a significantly reduced pension for some at retirement, particularly when compound interest on invested sums is taken into account.
This quirk in the tax systems means many on a lower pay rung are not receiving Government tax relief into their pension pots, because their employer has put them in a ‘net-pay’ scheme. However other workers who are in a ‘relief at source’ scheme receive the top up.
Around two third of those impacted are women. Quilter says that by perpetuating this issue, the government have allowed this two-tier pension system to operate for too long.
The government launched a consultation on how to remedy the situation in July last year but there has been no update since them. Quilter is urging the government to prioritise this injustice and provide the long overdue remedy.
Quilter retirement planning expert Ian Browne says: “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.”