The government is concerned about the potential for a low-earning individual’s take-home pay to be affected by the method of pensions tax relief operated by their pension scheme. The government is keen to explore this issue further to understand what deliverable options for change may exist.
This call for evidence seeks views on how certain proposals could be adapted to address the discrepancy in outcomes for low earners in a way that is consistent with the government’s principles for reform. Any other proposals around the administration of pensions tax relief would also be welcomed.
With the introduction of Stakeholder Pensions and then personal pensions under Auto Enrolment, much confusion has resulted in the application of tax relief on pension contributions. It is thought that around 1 in 10 employers are operating the incorrect relief for their scheme through misunderstanding of terminology.
So the Net Pat Arrangement (NPA) or Net Schemes have nothing to do with deductions from Net Pay, and the Relief At Source (RAS) have no actual relief as a tax reclaim is made by the pension insurer entirely separately. Confusion abounds.
The problem is not with employers, it is a problem for government and the pension schemes to solve.