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ARTICLE · 16 DECEMBER 2021

Tax Boost For Low Earners

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In the autumn Budget, the Government announced plans to fix a longstanding pension tax issue: the "low earners anomaly". This is a positive development for low-earning members under "net pay" schemes.

United KingdomTax
Richard Evans
Richard Evans
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In the autumn Budget, the Government announced plans to fix a longstanding pension tax issue: the "low earners anomaly". This is a positive development for low-earning members under "net pay" schemes. For employers it signals that other, less attractive, proposals are no longer on the table.

The anomaly

Members of DC schemes receive tax relief in one or other of two ways: "net pay" and "relief at source".

Most occupational pension schemes, including many master trusts, work on the net pay basis. Members' contributions come out of their pre-tax earnings. They pay tax only on the earnings which remain.

Relief at source ("RAS") is generally associated with personal pension schemes, though some master trusts offer it as an option. Under an RAS scheme, members' contributions come out of their taxed earnings. But the Government makes top-up contributions which effectively deliver tax relief at 20%. Higher-rate taxpayers can claim additional relief via their tax

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