Occupational Pensions: Tax Allowances

HM Treasury written question – answered on 3rd April 2017.

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Photo of Baroness Altmann Baroness Altmann Conservative

To ask Her Majesty’s Government, further to the Written Answers by Lord O’Neill of Gatley on 19 September 2016 (HL1586, HL1587 and HL1757), Lord Freud on 15 September 2016 (HL1588), and Lord Young of Cookham on 25 October 2016 (HL2186), what analysis they have undertaken to identify how many employees are saving into a workplace pension which denies them tax relief.

Photo of Baroness Altmann Baroness Altmann Conservative

To ask Her Majesty’s Government what will be the effect on the pension provision for low-paid workers earning (1) between £10,000 and £11,000 a year from their employer, and (2) below £10,000 a year from one or more employers, of being put into a defined contribution workplace pension scheme which operates on a net pay basis.

Photo of Baroness Altmann Baroness Altmann Conservative

To ask Her Majesty’s Government what assessment they have made of the challenges faced by low earners whose employers use a net pay arrangement pension scheme which denies them the tax relief they would receive in a relief at source scheme.

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Commercial Secretary to the Treasury

Tax relief is granted on contributions to all registered pension schemes, including workplace pensions. This relief can be provided for through two mechanisms: net pay or relief at source.

Where a scheme operates the net pay mechanism, contributions are deducted from pay before any tax is applied. This approach applies to all members of the scheme including those earning (1) between £10,000 and £11,000 a year from their employer, and (2) below £10,000 a year from one or more employers. The pension provision would depend on these contributions as well as those made by the employer.

The Government appreciates the impacts on low paid workers whose employers use a net pay arrangement pension scheme. However, it has not been possible to identify any straightforward or proportionate means to align the effects of the net pay and relief at source mechanisms more closely for this population.

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