Clare Moffat, Head of Intermediary Development and Technical at Royal London: “This announcement is a welcome one particularly for women who are impacted most. However, the change won’t be until 2025-26 in respect of pension contributions made from 2024-25 onwards. For many people the amount of tax relief which they would receive in a net pay or a relief at source scheme would work out the same but this isn’t the case for lower earners. Someone in a relief at source scheme, who pays no or little income tax, will still receive 20% tax relief which is added to their pension. But someone who earns the same in a net pay scheme would receive no tax relief for any amount under the personal allowance. This means that they would have less at retirement.
“Solving this issue in relation to low earners and the two main ways to receive tax relief was never going to be simple. However, this announcement acknowledges that a change is necessary. According to Government statistics, 75% of those impacted are women and there is already a large gender gap in relation to pensions with women having less at retirement than men. Often this is due to the fact that they have worked part time in lower paid jobs and if they have been in a net pay scheme, they might have received little or no tax relief.”
Jason Whyte, Associate Partner in EY’s Life & Pensions practice: “The Chancellor’s announcement of a consultation on the charge cap for Defined Contribution (DC) pensions will be welcomed by the industry and should be good news for savers. The charge cap has been effective in driving down costs for DC savers, but has made it hard for pension providers to offer their members illiquid or alternative investments that, while they cost more to acquire and hold, can deliver greater returns in the long run. A move to a more flexible cap that allows for these “patient capital” investments would support the Government’s desire to unlock institutional investment in innovative businesses, infrastructure and sustainability – something that is becoming more urgent as Defined Contribution overtakes Defined Benefit schemes as the largest pool of long term investment money. This is in line with the recommendations from the Bank of England’s Productive Finance Working Group.”
Mike Ambery, Partner, Hymans Robertson, says: “It is great to see the government announcing that it’s at last abolishing this inequality for low earners in respect of net pay arrangements (rather than Relief at Source). We support every incentive for individuals to save and engage with pensions and have been calling for these technical inequalities to be eroded for many years. It will be very welcome news for just over a million people saving into pensions. It is just a shame that these savers will have to wait for three years for the changes to actually come into force and to be finally able to benefit.”
PMI President Lesley Alexander said: “We were aware that the Chancellor was seeking to make a series of dramatic cuts as part of his programme of post-Covid economic recovery and that extensive changes to pensions tax relief might be part of that agenda. However, the ‘Exempt, Exempt Taxed’ regime has served our system of workplace pension schemes extremely well for over a century, and we are greatly encouraged that Mr Sunak understands and respects its value to society.
"We are, however, disappointed that the Chancellor has again missed an opportunity to make improvements to the existing system. Having reformed the Tapered Annual Allowance in a previous Budget, with the consequence of reducing the number of people caught by it each year, it would have been logical for Mr Sunak simply to have abolished it altogether.”
Romi Savova, PensionBee CEO, comments: "Today's televised budget announcements contained few specific measures for pensions. Yet buried in the detailed budget text is a confirmation that the triple lock will in fact be a double lock for 2022/23, resulting in an increase in the state pension of just over 3%. This was already widely expected given the anomalous rise in earnings of around 8%. But it does seem somewhat incongruous with a rise in the National Living Wage of over 6%, calling into question the longer term commitment to the triple lock beyond 2023."
Steven Cameron, Pensions Director at Aegon said: “We’re delighted to see the Government allowing in its Budget spending figures for a resolution to the ‘net pay’ anomaly that has led to the lowest earners in ‘net pay’ schemes losing out on tax relief on their pension contributions. This has been a long standing injustice and it’s great that the Government is delivering on a long standing commitment to sort this out, It’s estimated to benefit 1.2 million individuals by an average of £53 a year.
“The ‘net pay’ anomaly means non-taxpayers in pension schemes which have opted to administer tax relief on what’s called a ‘net pay’ basis have lost out compared to those schemes operating the alternative ‘relief at source’ approach. HMRC grants non-taxpayers in ‘relief at source’ schemes basic rate tax relief but their counterparts saving in net pay schemes currently receive nothing, which means they are effectively losing out. This is a true ‘levelling up’ measure although some will be disappointed that it won’t come into effect until 2025-26.”
|
