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THOUSANDS of low-paid workers are being denied tax relief on their pensions because of a loophole in regulations, the TUC Congress will hear this weekend.
Employers are now obliged to auto-enrol their employees in a workplace pension scheme, with their contributions “topped up” by the government, usually through the reimbursement of tax.
But this reimbursement is only made available to workers earning under the income tax threshold if their company operates a “relief at source” pension plan.
Under another type of pension, the net pay scheme, the top-up is not awarded to non-taxpayers even though they are entitled to it.
Workers are auto-enrolled if they earn more than £10,000 a year, and the income tax threshold now stands at £11,850.
The potential losses, which could affect up to 300,000 people, have been dubbed “the next PPI scandal.”
A motion expected to be endorsed at the Congress tomorrow says ministers have “done nothing to address” the issue, in spite of tax experts calling attention to it.
“As auto-enrolment contributions increase and personal tax thresholds rise, the number of people losing out and the scale of their loss will keep growing,” the motion, put forward by banking union Aegis, warns.
The union has accused the government of “continuing to encourage the lowest paid to save for their retirement while denying them tax incentives.”
The motion mandates the TUC general council to “raise awareness of this issue with workers and employers so they can put pressure on government to close the loophole and pay those on lower incomes the tax relief they are due.”
In June, Pensions Minister Baroness Buscombe pledged that the government would “examine the processes for payment of pensions tax relief for individuals to explore the current difference in treatment.”
The TUC has already submitted evidence to the Department for Work and Pensions review of auto-enrolment, calling for reform of the requirement for workers to earn £10,000 from a single job before they are enrolled automatically.
It argues that this rule “locks many low-paid workers, most of them women, out of the pensions system.”
Only a third of automatically enrolled workers are women, according to the general council’s report to the Congress.
There has also been speculation that wider tax relief on pensions could come under attack in Chancellor Philip Hammond’s autumn Budget in November.
The Daily Mail reported an unnamed senior government source as saying that Mr Hammond had identified some £38 billion in pension tax relief as “one of the last remaining pots we can raid.”
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