Pension: Bernard Jenkin says 8% increase ‘can’t be justified’
Make the most of your money by signing up to our newsletter for FREE now
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
Pension income and contributions are subject to tax costs but relief is offered at certain levels. For taxpayers, pension tax relief is given for contributions under two arrangements, net pay and relief at source.
Under net pay arrangements, employers take pension contributions from a person’s pay before it’s taxed.
The worker will then only pay tax on what’s left, which means they’ll get full tax relief, regardless of whether they pay tax at the basic, higher or additional rate.
Under relief at source, an employer will take the workers pension contribution after taking tax and National Insurance from their pay.
However much they earn, their pension provider then adds tax relief to the pension pot at the basic rate.
Pension income and contributions can be subject to tax (Image: GETTY)
Where employers utilise relief as source, certain administrative actions and forms must be completed.
However, HMRC warned today that some companies are behind with their returns, which could have ramifications down the line.
HMRC detailed: “The deadline for submitting your annual return of information and APSS590 declaration for 2020 to 2021 to HMRC has passed.
“However, there are still returns outstanding from scheme administrators who’ve submitted interim repayment claims for 2021 to 2022.
State pension age hope as petition forces government reply [INSIGHT]
Pension warning: Thousands to retire with rising debt in 2021 [WARNING]
Pension: How will your savings be affected by green investments? [EXPERT]
“If a 2020 to 2021 annual return of information was due for your scheme and this is still outstanding, any subsequent interim repayments will be withheld until we receive both the outstanding return and APSS590 declaration.
“We want to remind pension scheme administrators that it’s important to use the right naming convention when submitting an annual return of information for 2020 to 2021.
“Using the wrong references on either the file name or within the annual return itself, means our systems will reject your submission and you’ll have to resubmit the return.”
Relief at source rules came under the microscope recently, as the Government was condemned for failing to tackle certain pension tax anomalies.
Many retirees are dependant on a state pension (Image: EXPRESS)
On July 20, the The Low Incomes Tax Reform Group (LITRG) said it was “disappointed” at the Government’s lack of progress towards rectifying an inequality which sees an estimated 1.5 million or more low-income workers paying a 25 percent penalty for their pension savings.
LITRG explained: “Many pension schemes provide a government-funded savings incentive (in the form of tax relief) through a system called relief at source, enabling lower earners to get a taxpayer-funded contribution to their pension automatically.
“But other pension providers add this money through a net-pay arrangement.
“This works well for most people, but not for those who earn less than the £12,570 threshold for paying income tax. These people miss out on the taxpayer-funded contribution to their pensions they would otherwise be entitled to and end up paying it themselves.”
Kelly Sizer, a Senior Technical Manager at LITRG, concluded on this: “The cost of this pension inequality for affected low-income workers can amount to the price of a weekly shop each year. This is an unacceptable penalty to pay for the same pension savings as their counterparts for whom their employer has chosen to use a relief at source scheme.
“Given this issue has been known about for several years, the cumulative cost is mounting and continues to do so the longer the Government delays in implementing a solution.
“It is therefore disappointing that the Government has not taken the opportunity presented by today’s tax ‘Legislation day’ to respond to the call for evidence it published a year ago following its manifesto commitment on the issue.
“While no solution is likely to be entirely straightforward, LITRG believes that we have found a pragmatic way to equalise the cost of pension contributions for all. Our proposed fix is that HMRC use data they already have, collected via the PAYE ‘real-time information’ system, to identify those taxpayers affected and make a payment to them equivalent to the tax relief they would have received in a relief at source scheme.
“While there have understandably been other priorities over the last 18 months, we now urge the Government to take action to deal with this injustice as soon as possible.”