Things move slowly in Pensions, the Irish are waking up to their not getting auto-enrolled workplace pensions till 2025, even though I’ve been told by David Harris, that they’re just around the corner since 2010.
But this blog is not about Irish auto-enrolment but about the UK version and about the net pay anomaly which scandalously has been dragging on since 2015. Although people could have lost out for over 10 years by the time they receive compensation, it is the height of Treasury meanness that compensation is being based on only one year’s contribution.
In 2019 Boris Johnson pledged to do something about it and in 2021 HMRC actually followed up and said it would put in place a plan which will mean that from tax year 2024/25. People who’ve been overpaying their workplace pensions by 25% will get a tax rebate, payable to their bank account by HMRC in the summer of 2025.
To get it , people will have to sign for it, approving the payment on offer. There are details to clear up about whether the 2025 and subsequent payments will attract tax liabilities or impact people’s capacity to claim benefits – leave that to one side. You can read HMRC’s statement here and the CIPP have produced a good technical briefing here.
Praise for getting a partial resolution should chiefly go to the Low Income Tax Reform Group and Ros Altmann.
But the solution is only partial and the issues have not been discussed with those impacted. Have we learned nothing from the WASPI fiasco?
What does this mean to those who’ve been short-changed.
What people will get will be a cash payment into their bank account which could be as low as a few pounds and as high as around £170. The amount depends on the amount paid as a personal contribution into a workplace pension which should have been paid as “relief at source” by HMRC.
What they won’t get will be any refunds of overpaid contributions before April 2024, including the contributions being paid over the next quarter.
I’ve seen my fair share of pension scandals over the past four decades and they all have common features
- The people who are shafted find out about it after the event
- Information is usually withheld or shared badly before the event
- The greater embarrassment/compensation would have been avoided, if the issue had been dealt with “at source”.
We all should know by now which workplace pension providers operate a net pay arrangement (bad for low earners) and which the at source method. As a rule of thumb, you are ok if you are with an insurance company and not so ok if you are in a company pension scheme run by your employer. There are a few master trusts that are ok for low earners (Nest and Peoples and I think Smart who are getting there) , but for most part all other occupational schemes short-change low-earners. This includes all contributory schemes – including all contributory public sector schemes.
So what is likely to happen later than year is that HMRC will announce how the tax refunds will work and what people will have to do to claim theirs.
What will follow is a period when the newspapers wake up to the story (ten years late) and websites are set up allowing people to work out how much of their 2015-2024 contributions they’d be due back, if they could claim them. There will of course be a lot of people who can’t claim in 2024-5 who could have claimed prior to then – had retrospective claims been allowed.
What remains to be seen is the situation at NOW pensions, which is reported to be moving from net pay to relief at source – possibly from as early as April 2024. If so, then NOW savers will have no claim for 2024-5 even if they’ve been loyal to the scheme for 10 years.
The wheels of this mess are grinding away as I type.
The cost to the exchequer in terms of money refunded is minimal
Compensation increases by half in year two suggesting a low level of claims in one year. We’ll be doing our best to make sure everyone gets the money due them as claims aren’t retrospective
But HMRC have set upside £38m to meet the operational costs. HMRC. This suggests that annual compensation is only going to be £60 per person per year. I suspect that cooked into the numbers is a high level of non-take up, possibly associated with people associating money back from the HMRC in exchange for bank details as a scam.
I have not seen the Exchequer Impact going back to 2015, but were the 10 years to 2025 be assessed similarly, then the maximum impact of doing the job properly would be little more than £100m. £100m is seen as “small” in pension terms.
The HMRC figures of £10-15m liabilities are not even flies in the ointment, HMT may also be thinking of the very high levels of opt-outs from some of the Government schemes, especially nurses who can no longer afford to stay in the NHS pension scheme ,If so , it is a sad way to run a pension scheme, to manage liabilities by making participation unaffordable. Should savings incentives only favour the affluent?
Bearing in mind the sunk cost of system changes are nearly 4 times the first year of compensation , it’s mean not to extend compensation to everyone who can make a claim going back to 2015. This may be what a different Government ends up doing, out of embarrassment and expediency. Those should not be the drivers of policy and certainly not of a progressive social policy.
