Asked by: Baroness Altmann (Conservative - Life peer)
Question to the Department for Work and Pensions:
To ask Her Majesty's Government what steps they are taking to ensure that the Pensions Regulator will require trustees of net pay pension schemes to make provision for low earners to save in a relief at source scheme and do not enrol workers who would have to pay 25 per cent extra for their pensions.
Answered by Baroness Buscombe
Automatic enrolment is a great success story with more than 9.9 million workers enrolled into workplace pension saving and over 1.3 million employers meeting their duties to date.
Under automatic enrolment the employer is responsible for putting in place a qualifying workplace pension scheme for their eligible workers. Employers have a choice, in the marketplace, of a number qualifying workplace pension schemes that can be used to fulfil their automatic enrolment duties; including the National Employment Savings Trust (NEST). NEST has no set-up costs, and a public service obligation to accept any employer who meets their scheme’s terms and conditions.
The Pensions Regulator provides guidance to employers on choosing a pension scheme for their staff in order to discharge their statutory obligations under automatic enrolment. This provides information about the choice between net pay and relief at source schemes, and the implications of net pay schemes for employees who do not pay tax.
Asked by: Baroness Altmann (Conservative - Life peer)
Question to the HM Treasury:
To ask Her Majesty's Government what plans they have to ensure that non-taxpayers who are automatically enrolled in a net pay workplace pension scheme can receive the 25 per cent bonus that they would receive in a relief at source scheme.
Answered by Lord Bates
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.
Asked by: Baroness Altmann (Conservative - Life peer)
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.
Answered by Lord Bates
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.
Asked by: Baroness Altmann (Conservative - Life peer)
Question to the Department for Work and Pensions:
To ask Her Majesty's Government what estimates they have made of the (1) number, and (2) gender breakdown, of workers earning below the personal tax threshold who have been automatically enrolled into a net pay workplace pension scheme.
Answered by Baroness Buscombe
Automatic enrolment has reversed the decline in workplace pension saving. Latest figures show that more than 9.9 million people have been automatically enrolled; with participation amongst eligible women in the private sector increasing, from 40 per cent in 2012 to 80 per cent in 2017, to equal the rate for men. By 2019/20 an extra £20 billion a year is estimated to go into workplace pensions as a result of these reforms.
Automatic enrolment requires the sponsoring employer to put in place a qualifying workplace pension scheme for their affected workers. The Pensions Regulator provides guidance to employers on choosing a pension scheme for their staff in order to discharge their statutory obligations under automatic enrolment. This guidance covers the choice between net pay and relief at source schemes, and the implications of net pay schemes for employees who do not pay tax.
Government does not collect data about whether net pay arrangements or relief at source pension schemes are used by employers to comply with their automatic enrolment duties.
Asked by: Ronnie Cowan (Scottish National Party - Inverclyde)
Question to the Department of Health and Social Care:
To ask the Secretary of State for Health and Social Care, what assessment he has made of the potential merits of removing or reducing the NHS pension annual allowance or increasing its limits to improve the retention of experienced senior hospital doctors and GPs.
Answered by Steve Barclay - Secretary of State for Environment, Food and Rural Affairs
Experienced senior hospital doctors and general practitioners who decide to become members of the NHS Pension Scheme (NHSPS) benefit from one of the best available defined benefit occupational pension schemes giving them a very good retirement income. Work done by the Government Actuary’s Department has concluded that the NHSPS remains good value and the “scheme pays” facility offers an efficient mechanism for meeting any tax liabilities.1
The annual and lifetime allowances are important fiscal measures to ensure income tax relief on pension contributions is fair and sustainable. In context of the 1995 final salary section of the NHS Pension Scheme, clinicians who use up the full £40,000 annual allowance would see their annual pension increase by around £2,500. Clinicians who reach the £1 million lifetime allowance limit can expect an annual pension of around £44,000 payable at age 60 and increasing with inflation, plus a tax free lump sum of £132,000. Pensions of this size provide substantial financial security in retirement.
Note:
1This work considered the length of time a member subject to the annual allowance would need to receive pension in retirement to recover both their own contributions to the NHSPS and the annual allowance tax charge for the year in question. Although the exact period depends on a number of factors including level of pay, section of membership, age at retirement, amount of tax free cash selected at retirement and the means of paying the AA tax charge (scheme pays or in cash) in most cases the period is less than half the expected life expectancy in retirement.
Asked by: Baroness Altmann (Conservative - Life peer)
Question to the HM Treasury:
To ask Her Majesty's Government whether they are planning to ensure that workers earning below £11,500 a year who are automatically enrolled into Net Pay Schemes are able to obtain the tax relief they are due; if so, how; and if not, whether they intend to introduce alternative measures to ensure that either (1) the employer, or (2) the pension provider, compensates such low earners for the money they lose out on.
Answered by Lord Bates
The Government recognises the different impacts on workers earning below the personal allowance. However, 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.
Workplace pension schemes are chosen by employers and the Pensions Regulator provides guidance on this in relation to automatic enrolment. The guidance covers the choice between net pay and relief at source schemes, and the implications of net pay schemes for employees who do not pay tax. It also says that some schemes that use the net pay arrangement may have lower charges than schemes that operate relief at source.
Asked by: Lord Field of Birkenhead (Crossbench - Life peer)
Question to the HM Treasury:
To ask Mr Chancellor of the Exchequer, what estimate he has made of the cost to the public purse of providing the 20 per cent tax relief to non-taxpayers enrolled in net-pay-arrangement defined contribution pension schemes on the same basis as is provided in relief-at-source schemes; and how many people are not benefiting from that relief.
Answered by Steve Barclay - Secretary of State for Environment, Food and Rural Affairs
No estimate has been carried out on the cost of providing tax relief for non-taxpayers enrolled in net-pay schemes. Legislation determines the difference between net-pay and relief-at-source systems, and ultimately, it is for pension schemes to choose which to apply. To help employers choose an appropriate pension scheme, The Pensions Regulator offers guidance, including information on the different methods by which tax incentives are obtained.
Asked by: Baroness Altmann (Conservative - Life peer)
Question to the HM Treasury:
To ask Her Majesty’s Government what estimate they have made of the cost of extra tax relief due to lower than expected opt-out rates from workplace automatic enrolment in the tax years (1) 2013–14, (2) 2014–15, and (3) 2015–16.
Answered by Baroness Neville-Rolfe - Minister of State (Cabinet Office)
Estimates are not available for the extra tax relief due to lower than expected opt-out rates from workplace automatic enrolment. However, the Government remains committed to supporting people saving for retirement.
Automatic Enrolment has produced a significant change in private pension saving and has already reversed the decline seen in the decade prior to its introduction. As at the end of February, over 7.5 million people had been enrolled into a workplace pension.
Asked by: Baroness Altmann (Conservative - Life peer)
Question to the HM Treasury:
To ask Her Majesty’s Government what contact they have had with the Pensions Regulator during the past six months to ensure that the Regulator and the MasterTrust Assurance Framework take all necessary steps to ensure that workers earning below the personal tax threshold, and their employers, who are paying into net pay pension schemes under the auto-enrolment rules, are not disadvantaged by the loss of tax relief, and are properly informed of the personal impact of those schemes.
Answered by Baroness Neville-Rolfe - Minister of State (Cabinet Office)
The Government has regular discussions with the Pensions Regulator on a range of issues, including workplace pensions.
Workplace pension schemes are chosen by employers and the Pensions Regulator (TPR) provides guidance on this in relation to automatic enrolment. The guidance covers the choice between net pay and relief at source schemes, and the implications of net pay schemes for employees who do not pay tax. It also points out that some schemes that use the net pay arrangement may have lower charges than schemes that operate relief at source.
All employers, including public sector employers, are expected to follow TPR’s guidance about providing their employees with relevant information on the arrangements for tax relief.
Asked by: Baroness Altmann (Conservative - Life peer)
Question to the HM Treasury:
To ask Her Majesty’s Government what plans they have to ensure that employers and workers are informed that net pay arrangement pension schemes may be unsuitable for workers who earn below the personal tax threshold unless the employer or the scheme pays in the amount they would receive in tax relief on their behalf.
Answered by Baroness Neville-Rolfe - Minister of State (Cabinet Office)
The Government has regular discussions with the Pensions Regulator on a range of issues, including workplace pensions.
Workplace pension schemes are chosen by employers and the Pensions Regulator (TPR) provides guidance on this in relation to automatic enrolment. The guidance covers the choice between net pay and relief at source schemes, and the implications of net pay schemes for employees who do not pay tax. It also points out that some schemes that use the net pay arrangement may have lower charges than schemes that operate relief at source.
All employers, including public sector employers, are expected to follow TPR’s guidance about providing their employees with relevant information on the arrangements for tax relief.