Key “net pay” (or variations on the phrase) into the keyword search on this blog and you will find over 30 articles going back to early 2015.
It was Kate Upcraft who first put me on to the problem which emerged as the auto-enrolment entry band did not align with the entry level for income tax. She explained that not just the relatively few people auto-enrolled into net-pay occupational schemes then, but the huge number auto-enrolling since, could lose out on the Government promise of 4+3+1 contribution structure (with the 1 being a percentage of pensionable payroll, which earned a Government incentive. To put it bluntly, net pay schemes put 12.5% of your contributions at risk.
Of course the risk isn’t very real for the higher paid who are unlikely to get out of bed for less than £1000 pm; the risk falls on the lowest paid who often are the least advantaged in society.
I argue that those people who don’t get the ‘1’ are in contribution deficit and I’ve told the Pensions Regulator that if they are prepared to
block employers with DB plans from completing corporate transactions until DB deficits are plugged, they should do the same with DC. Whitbread’s sale of Costa to Coca-Cola is a case in point. We do not know how many Costa employers are missing part of their pension entitlement, but – knowing the nature of work at Costa, we can imagine it’s quite a few. I want an audit of DC contribution shortfalls to be carried out now and for the restitution of promised incentives to be completed before the deal is done.
This is why I am proud to be one of the signatories on the letter to the Chancellor, delivered by NOW Pensions.
Progress so far.
The Daily Mail’s This is Money has run its piece which is very comprehensive. You want a link? Here it is .
The Daily Express has also run a good piece. Here it is
And there are various articles in the trade and political press; here they are
FT Adviser – Altmann and Webb demand tax loophole is closed
Pension Age – Industry heavyweights urge Chancellor to fix the net pay anomaly
Actuarial Post – Now Pensions signs letter to Chancellor on net pay anomaly
Politics.co.uk – Campaigners press government for action on pension tax relief
Financial Reporter – Campaigners call for government action on pension tax relief losses
CIPP – Campaigners press government for action on pension tax relief
Money Age – NOW: Pensions co-signs letter to Chancellor to prevent AE being ‘undermined’
HenryTapper.com – NOW writes to the Chancellor on behalf of the pension unloved.
Well done the few – what of the many?
It’s all very well for the pensions industry to squeal about rich people’s problems, (Annual Allowance, Lifetime Allowance, IHT thresholds), but it’s incumbent on all of us to come to the help of those who don’t have financial advisers and aren’t valuable to pension providers.
I’m really pleased to see those who put their signatures to the NOW letter. They deserve applause.
Caroline Abrahams, Charity Director, Age UK
Baroness Ros Altmann, Chair, pensionsync
Troy Clutterbuck, CEO, NOW: Pensions
David Dalton-Brown, Director General, Tax Incentivised Savings Association (TISA)
Anne Fairpo, Chair, Low Incomes Tax Reform Group of the Chartered Institute of Taxation
Helen Hargreaves, Associate Director of Policy, Chartered Institute of Payroll Professionals (CIPP)
Paul Nowak, Deputy General Secretary, Trades Union Congress (TUC)
Nigel Peaple, Director of Policy and Research, Pensions and Lifetime Savings Association (PLSA)
Henry Tapper, First Actuarial and Pension PlayPen
Steve Webb, Director of Policy, Royal London
But where is the ABI on this?
The ABI can generally sit smugly on the right side of the debate, because the GPPs which form the bulk of their corporate pension business operates on a relief at source basis. Though some insurers run master-trusts on a net-pay basis, the ABI declined to sign the letter as they could not mobilise their membership behind it.
What possible detriment could there be to the reputations of insurers , in calling for the low-paid to be given a break? I am saddened that the ABI are not signatories, I hope that they will put their weight behind the campaign within the next three weeks.
All eyes on the budget
In three weeks, Philip Hammond will deliver the 2018 Budget. He speaks for a Government run by Theresa May who pledged, on appointment to help those just getting by.
If Theresa May is reading the Express, the Mail and the many other publications I hope will follow, she may want to nudge her Chancellor a little further. For the untold number of us Brits who participate in auto-enrolment and don’t get the break they’ve been promised are precisely the people who struggle to “just get by”.
Esther McVey and Guy Opperman should be rattling the Treasury Gates. Opperman in particular- he asked to have the title of Minister of Pensions and Financial Inclusion. If you believe in financial inclusion and are happy to take the credit for auto-enrolment , why are you excluding the newly “included” from what you promised them?
Brilliant piece Henry. Well said! Now let’s hope this issue will gather growing momentum for those low earners losing out so unfairly. Ros
Well done on this push and it’s an impressive list of supporters.
Can you clarify the legal issue involved here? Is it the case that the “relief at source” rules are an administrative concession by HMRC and non-taxpayers get the benefit of the 25% hike which is not strictly theirs and they don’t pay it back because they don’t do tax returns?
The danger is that rather than creating a fix for the net pay schemes HMRC closes the benefit for the others.
I note that with relief at source someone who is a continuous non-taxpayer gets 100 back after retirement for 80 in during work.
The relief at source “concession” was introduced with Stakeholder Pensions and mean that non-taxpayers can be incentivised to save. The chance that Govt would throw the baby our with the bathwater are slim. Certainly there’s unlikely to be retrospective action.
Ahh Mr Webb, good to see you are railing against this injustice. Whomever was the pensions minister between 2010 and 2015 really had their eye off the ball, didn’t they?
This was called out years ago, when AE was under consultation but as usual simply steamrolled in the name of rushing it past the finishing line.
You will be aware, Henry, that even the distinction in categories of AE introduces what could be perceived as bias against those who either don’t earn the threshold amount, are too young, or too old.
AE is being heralded a massive success without considering the impact it will actually have, especially if many are opting out (with the young preferring the bird in the hand to a bird and a half in 30 or 40 years time) and the impact this has had on SMEs productivity and profitability.
It’s kind of like the minimum wage. On the surface it doesn’t seem so unreasonable, but you have to engage your brain and consider the wider implications.
I suspect one of the reasons AE was favoured instead of simply enforcing a minima of contributions per employee was that in heralding a new type of workplace pension, ministers could simply usher in a new system of reviews and fines for non-compliance. This avoids the problems of looking at past mistakes and actually fixing the fundamental problems, you see, as well as politicians giving themselves a self-congratulatory round of applause before moving on to ruin the next thing they don’t understand.
Stakeholder pensions ultimately failed because the requirement was to ‘ensure they were available’ as opposed to making meaningful contributions in the ‘spirit of the legislation’.
Occupational arrangements are primarily structured along a trust basis (as opposed to contract-based pensions) which is why they use net pay.
So any legal change to the net pay contribution collection method could have ramifications well beyond AE arrangements.
The legal precedent set by a change to net pay could have a massive effect on occupational schemes in general, with many unintended consequences.
“What possible detriment could there be to the reputations of insurers, in calling for the low-paid to be given a break?”
Because that isn’t the question being asked Henry! The majority of ABI schemes (as you point out) will be RAS, and crucially this is a legislative issue, NOT a business practice issue. The ABI has not typically been prone to virtue signalling, I guess we’ll see if that continues.
The ABI would do well to sit out at this stage and be introduced later down the line should changes be required by legislation as they are ones who will likely have to physically implement the change.