On the go: The government has introduced legislation that will equalise the tax relief top-ups offered to low earners saving in net pay arrangements and those using relief at source schemes.
In April, the Treasury confirmed that the first top-ups for contributors to net pay schemes will be provided by the government by the 2026-27 tax year.
Since 2015, net pay savers have had less take-home pay than those using a relief at source scheme. Relief at source scheme users receive a 20 per cent top-up from the government on their savings, whereas those using net pay schemes receive tax relief at their marginal rate, which is 0 per cent.
“A quirk in our pensions tax system has meant that over 1mn low earners have lost out on government top-ups to their pensions, resulting in comparatively less take-home pay,” said financial secretary to the Treasury Lucy Frazer.
The government said the change would see around 1.2mn low earners receive top-ups from 2025.
The average beneficiary will receive £53 a year, and these top-ups will be received directly into their bank accounts. Three-quarters of recipients will be women, it said.
The initiative will cost the government £10mn in 2025-26 and £15mn in 2026-27.
“While it is laudable that the government is actually tackling the problem, its solution remains imperfect, but at least better than the current situation as it commits to paying a top-up contribution directly to the person’s bank account,” Quilter head of retirement policy Jon Greer said.
“However, this ultimately means they will lose out on potential growth by not having the money held in the pension fund and invested.
“This solution also creates a risk of delay between the pension contribution being made and receiving the top-up. It’s been a long road to get to this point, and there are still some miles to go before this quirk in the pensions tax system is finally addressed.”
