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CIPP survey on the government consultation on pensions tax relief 21 August 2015
The government is interested in exploring options for how the system of pensions tax could be reformed to strengthen the incentive to save. Please find the time to complete our survey as any changes will affect us all, personally and professionally.
Following the announcement in the Summer Budget, the government published a consultation on pensions tax relief and how it can encourage people, especially low to moderate earners, to save for their pension.
Increased longevity and the changing nature of pension provision provide the basis for considering how the government can best support people to save into their pension. The government needs to make sure that the system encourages more people to ensure that they have sufficient savings for later life. The current system of pensions tax is simple in principle. Individuals are encouraged to defer their income and pay tax on it when they retire. A sound case can therefore be made that the best method of achieving the government’s aim of fostering a strong culture of saving is to retain the current system, particularly as it is deeply embedded in many processes used by employers and pension providers.
However, the government is also interested in exploring options for how the system of pensions tax could be reformed to strengthen the incentive to save. The principles the government believes any reform should meet are:
that it is simple and transparent;
it must encourage employees to take personal responsibility; built on the early success of automatic enrolment; and be sustainable in terms of being aligned with its long term fiscal strategy.
The CIPP’s Policy Team has created a survey to obtain your views on how these principles could best be achieved. The survey should take around 20 minutes to complete and will close on 14 September 2015.
We hope that all of you will manage to find the time to complete this survey as this is something that will affect us all, both as a profession and as individuals. Thank you in advance for your time and input.
Pensions tax relief 20 August
There are two different ways of applying tax relief for employee’s pension contributions; Relief at Source or Net Pay Arrangement, and they are often misunderstood or confused.
It is very important that whoever is doing the payroll knows what type of tax relief to use when calculating the member’s contributions. If payroll is not set up correctly, the wrong employee contributions will be taken.
With “ Relief at Source ” (RAS), the employer reduces the full member contribution by the equivalent of the basic rate of tax (20% at present) and deducts the reduced amount from the employee’s net pay, which is paid over to the pension provider. The pension provider then claims the 20% basic rate tax relief back from HMRC and adds it to the member’s pension pot. Higher rate tax payers will need to claim any additional tax relief due on their pension contributions from HMRC directly via Self Assessment. For example, a worker with pensionable earnings of £1,000 and a 1% contribution would have £8.00 deducted from net pay and paid to the provider who would then claim £2.00 from HMRC, so that a total of £10.00 is paid into their pot. “ Net Pay Arrangement ” is when tax relief is applied by payroll (so the employer gives tax relief on the pension contribution as part of the normal payroll process, i.e. the pension contribution reduces the worker’s taxable pay and tax is calculated on the reduced pay accordingly). The full contribution is then paid over to the pension provider. For example, an employee with pensionable earnings of £1,000 and a 1% contribution would have £10.00 deducted from gross pay and £10.00 would be paid to the pension provider.
CIPP Policy News Journal
25/04/2016, Page 368 of 453
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