HMRC’s smokescreen leaves multi-jobbers without a pension

John Glen’s response to Stephen Timms’ Work and Pensions Committee’s inquiry is revealing.  Primarily, it is another example of “computer says no”, the Treasury’s stock response to initiatives that will cost in IT time and drain further revenue by way of increased tax-relief for those on low earners. Secondly, it introduces a new question about “confidentiality” and the rights of low-earners to keep their employers from knowing if and how they are multi-jobbing.

Frankly I don’t buy John Glen or the Treasury’s response. The response is a smokescreen – -a  carcinogenic smokescreen that clogs the lungs and blinds the eyes.

If an employer is concerned that a low-earning employee is getting more income than it is paying, it can see this in the employee’s tax-code. But why should employers care? Is there a conspiracy theory that employers will restrict pay increases to low-paid staff when they discover that they are not quite as poor as they look? This suggests that reward strategies for those on minimal hours and a minimum wage are designed to keep workers oppressed. Frankly I do not think this likely.

Stephen Timms would do well to push back here. If HMRC has the capacity to collate information on an individual and tax that person on total income, it has the capacity to inform employers that their employee qualifies for auto-enrolment as an eligible job-holder , because total earnings are above the earnings threshold. What is more, the employee contribution becomes affordable for the same reason.

HMRC is not an agent for the high tax-payer but a Government department for all the people, whether they pay tax or not. Honi Soit Qui Mal Y Pense  – as the slogan goes.

 

What is more important for the low-earner, pseudo-privacy, or actual money paid into a pension pot to provide them with a future income?

I think this is bound up with a myth, put out by some pension providers that small pots don’t matter, they are to coin Steve Webb’s descriptor – “meaningless”. In terms of solving pensions adequacy at a macro level, small pots may be meaningless, but at a local level, when people are struggling with heating and eating – the £1,000 that may have built up in a pension pot , may be the bridge they need till the state pension and pension credits kick in.

As with the net pay anomaly, HMRC and the Treasury are showing their reluctance to consider the low-paid part of the funded pensions system. This is counter to the ideas of inclusivity that have run through pensions policy since the introduction of stakeholder pensions and the granting of incentive payments under relief at source to anyone who has the means to save. This of course includes the thousands of children who are saving fro their retirement as a result of gifted contributions from their parents, contributions that are incentivised by the Treasury to the tune of 25%.

The pension tax-system is heavily loaded in favor of the high earner with high net disposable income and low need to save to avoid financial penury in later age.

And it is heavily loaded against low-earners who have little incentive to save , other than the incubus of auto-enrolment.

Nowhere is this clearer than in the many multi-jobbers, drivers who work for Uber and Bolt for instance, or shift-workers  who work for a number of cleaning companies (to take two examples). Just how careless employers are about the pensions of low earners can be seen by how many employers with low earners choose workplace pensions like NOW pensions, which have no facility to pay relief at source. This despite Government guidance

And as for HMRC “protecting” such workers, the spurious principle of confidentiality is a blessing to employers who have a very real incentive to restrict low earners becoming eligible for automatic enrolment by breaching either the annual or pay period earnings thresholds.

We know that employers exercise their right to do this , because payroll software is able to pick up spikes in earnings that avoid “accidental enrolment”. So employers are armed with the software to legally exclude the poorest earners from pension contributions.

HMRC has developed a complex system of identifying tax liability by aggregating earnings across different jobs, it is bizarre to plead incapacity to use this functionality to ensure low-earners are included.

If any conspiracy theory has validity here, it is the conspiracy between some employers and the tax-man, to keep auto-enrolment targeted at higher earners and consign those with eligible earnings but multiple jobs – from an employer’s contribution and the promised incentive of a contribution from the taxman.

 

 

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to HMRC’s smokescreen leaves multi-jobbers without a pension

  1. Adrian Boulding says:

    If we scrap Qualifying Earnings and pay AE pension contributions on all earnings from £1 rather than only earnings above £6240pa, then this problem goes away without needing any HMRC computer changes or any “breach” of taxpayer confidentiality

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