Let’s not forget the low-paid’s pension problems


The initial financial shock of the pandemic was on markets.


and the headlines about mortality



The occasion was a Zoomed up pension conference and specifically a break-out session with Glyn Jenkins .

We were discussing the impact of COVID-19, with concern that the sharp drop in markets in March might have driven savers away. NEST spoke with authority that savers had not panicked  but that they recognized that the pandemic was going to hurt them financially.

nest analysis


Emboldened by stirring remarks from Glyn on the importance to ordinary people of the state pension , I thought it time to introduce the issue of the low paid who are overpaying their pension contributions – (typically by 25%),

Here as I remember is the conversation (anonymised as we were under the Chatham House rule)

Chair: I can see Henry has his hand up and has been asking a question in chat. Henry, I do hope you aren’t going to bore us about net pay?

Me: yes, that’s what I asked my question about.

Chair; is there an investment solution to this

Me; no this is not about investments, it’s about being fair to a group of people who are currently not getting value from their pension contributions because they are over-paying by 25%

Chair; oh go on – if you must…..

I am grateful to the chair as she is one of the very best minds in pensions and she can properly said to care for people.

She wasn’t trying to shut me up on her behalf  but she knew the other people in the room were not thinking of defined contribution pension schemes as they touch the bottom decile of earners in this country.  But pension pots matter to low earners as much if not more than to the people on the call.

NEST’s research on its membership shows a consistent worry about the impact of COVID-19 across age groups, gender , sex and those with and without children. Where there is greatest financial worry is among those on low incomes and where there is leas worry is among those with incomes above 30k.

The question of how we manage pensions for those on the lowest incomes is the more important for these savers, as they feel most vulnerable

nest analysis 2


Everybody’s pension matters

Here, for her and for all the other bright people who are desperately searching for ways to embed alternatives into DC defaults is the latest information solicited by Baroness Ros Altmann the low paid saving into workplace pensions

‘HMRC estimate that 1.3m individuals earning below the personal allowance in 2017-18 made workplace pension contributions via Real Time Information (RTI) using relief at source arrangements. About 65% of these individuals are estimated to be female and 35% are estimated to be male.  The personal allowance in 2017-18 was £11,500’.

Those in NEST are in a relief at source pension, which means that low earners saving into NEST are getting the promised Government incentive which amounts to 25% of their personal contribution under the 4+1+3 formula set out for auto-enrollment contributions.

However there was another and more sinister disclosure to the Baroness;

HMRC estimate that 1.5m individuals earning below the personal allowance in 2017-18 made workplace pension contributions via Real Time Information (RTI) using net pay arrangements. About 75% of these individuals are estimated to be female and 25% are estimated to be male.

HMRC’s Survey of Personal Income (SPI) and administrative data was used to produce the estimates. The 2017-18 SPI data (published in March 2020) is the latest year available. The SPI is updated annually.

For 1.5m of us not saving into NEST or People’s Pension or into an insurance company GPP or the relief at source section of the L&G master trust, the 25% incentive is still going missing.

It’s a poverty issue and especially a gender poverty issue

From these two disclosures we can get a picture of what is actually going on when the low paid let themselves get enrolled. We should be grateful to Kelly Sizer of the Low Paid Tax Reform Group for crunching the numbers.

Individuals earning below the personal allowance and contributing to pension schemes

Estimated for 2017/18


RAS(1) NPA(2) Difference – number of NPA contributors compared to RAS
Total 1,300,000 1,500,000 +200,000
Female 65% =      845,000 75% =       1,125,000 +280,000
Male 35% =      455,000 25% =          375,000 -80,000


(1) https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Lords/2020-05-18/HL4642/
(2) https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Lords/2020-03-18/HL2729/

What does this mean?

  1. The pension tax system is discriminating against one and a half million low paid people who have been promised a 25% top up on their pension savings and are not getting it.
  2. The pension system is discriminating against women who represent 65% of the people who aren’t getting the money promised them.
  3. Despite promises in the Conservative manifesto ‘this will be sorted’ and the budget which promised the Government would ‘shortly publish a call for evidence on the subject, nothing has happened. My message to the group on the Zoom call was simple,

Pension’s thought leaders cannot be complicit in Treasury delinquency.

A problem that is going to get worse.

You will notice that the numbers sourced by Baroness Altmann are for 2017. The net pay action group which she chairs estimates that the true number of people who aren’t getting their fare shares is now 1.7m. The Real Time Information system seems to be lagging.

But even if we work on the 1.5m figure, it is  shameful that  this matter is still considered ‘boring’. There is a simple way to sort this important issue and it simply requires HMRC to do some coding of their systems to put the 1.5m right.

But so long as we don’t bring this up at pension conferences or dismiss the issue as ‘boring’, we are indeed complicit in the Treasury’s delinquency. Around the world people are protesting to make every life matter. We need to adopt that attitude to pensions. We should all be concerned about the net pay anomaly and we should not allow COVID-19 to be used as a reason not to reward the low-paid for saving as they’ve been promised




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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4 Responses to Let’s not forget the low-paid’s pension problems

  1. Adrian Boulding says:

    Well said Henry. We must all keep up the pressure on this so that this deep unfairness gets resolved. Adrian

  2. Ian Neale says:

    I specifically raised this, and in particular the non-appearance of the promised ‘call for evidence’, at the Pensions Industry Stakeholder Forum held on 22 April 2020 (a meeting held via conference call). I reminded HMRC that they had been given a costed solution over two years ago, so why were they still dithering? I was told that this had been viewed as neither simple enough nor cheap enough – presumably by Ministers – so HMRC was going to cast around to see if anyone had a simpler, cheaper, solution. As to why even this latest exercise in prevarication had been delayed, the Forum was told that all consultations had been delayed by the pandemic. Is ‘irresponsible’ adequate to describe this inactivity?

  3. Stephen Tiley says:

    £12,000 a year non taxpayer has a 5% typical contribution = £600 a year – 25% missing top up = £150 or £12.50 a month.

    State Pension is getting near to £9k a year – that’s a pretty good replacement ratio is it not?

    I think a simpler response is to help the poorest in society rather than dismantle the tax relief system. By giving folks £12.50 a month to match what ‘at source’ folks get (by an unintended fluke in the tax rules) may just help partners of better off folks that are in less need but happen to work in part-time jobs.

    It’s perhaps up to them to lobby their employers, but for pension folks to get exercised about it is just wasting your energy – £12.50 a month is not going to do anything for anyone in retirement is it?

  4. henry tapper says:

    I’m also worried about the fiduciary implications of your final sentence. Huge quantities of pension credit goes unclaimed because people on low income can’t navigate the system. The trustee and IGC boards are there to protect people who don’t have the financial capability to manage this complex stuff. And look to PPI to see what happens if things are allowed to drift

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