Question to the HM Treasury:

To ask Her Majesty's Government how many pension master trusts operate on a net pay system; and how many master trusts use a relief at source administration system.

The Government does not hold complete data on whether a master trust pension scheme operates net pay or relief at source.

Pension schemes are not required to tell HMRC if they use the net pay arrangement. They do have to register with HMRC to use relief at source.

Pension schemes have only been required to declare whether they are a master trust during tax registration since April 2018. Schemes that were already registered at that date have not been required to inform Her Majesty’s Revenue & Customs that they are a master trust. They are required to inform HMRC if they become or cease to be a master trust.

The tax relief provided under net pay reflects an individual’s marginal rate of tax. Under relief at source, all savers receive a flat rate of 25%, equivalent to the basic rate of tax, regardless of their marginal rate of tax. This means that lower earners in relief at source schemes may receive extra tax relief. Higher and additional rate taxpayers can claim any further relief to which they are entitled from HMRC. This was designed to simplify the administration of personal pensions.

The government recognises the different impacts of the two systems of paying pension tax relief on pension contributions for workers earning below the personal allowance. To date, it has not been possible to identify any straightforward or proportionate means to align the effects of the net pay and relief at source mechanisms more closely for this population.

However, the government’s ambition for HMRC to become one of the most digitally advanced tax administrations in the world may present opportunities to look afresh at the two systems of paying pension tax relief, to explore the current difference in treatment, and ensure that we can make the most of any new opportunities, balancing simplicity, fairness, and practicality.