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A sigh of relief?
Automatic enrolment into workplace pensions has been successful. By harnessing people’s natural inertia it has resulted in many more people saving towards their retirement.
However in recent years this success has shone a spotlight on a wrinkle in the tax system which means some low earners benefit from tax relief on their pension contributions whereas others in similar circumstances do not.
The inequity arises due to there being two methods of giving tax relief on pension contributions:
- Net pay arrangements FA 2004 s 193 – the contribution is deducted from salary before tax is calculated so those paying tax receive immediate relief.
- Relief at source FA 2004 s 192 – the contribution is deducted from salary after tax is calculated and HMRC later sends basic rate tax relief to the pension scheme.
As shown in Jade someone earning...
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