From Ros Altmann:economist and pensions,
    investment and retirement policy expert

  • pensionsandsavings.com

    Low earners being forced to pay 25% too much for their pensions – how many scandals can pensions take?

    Low earners being forced to pay 25% too much for their pensions – how many scandals can pensions take?

    • Industry representatives call for Budget changes to end scandal of low earners being over-charged by 25% for their pensions.
    • Letter to the Chancellor asking him to ensure lowest paid workers treated fairly in pensions.
    • This scandal could derail confidence in auto-enrolment as more people – mostly women – lose more money in pensions.
    • Government and Pensions Regulator have been warned for years but haven’t sorted it – it’s time to act!

    There is a major scandal in auto-enrolment pensions which has been swept under the carpet for years. I discovered this as Pensions Minister and warned that low earners were not being treated fairly, but there was no interest in finding solutions. The problem has been getting worse ever since.

    This issue is a huge pensions injustice, which I highlighted to the Government from the moment I first discovered it, but nothing has been done to stop these workers losing out.

    Since 2016, I have asked so many Parliamentary Questions about this issue, raised it in numerous pensions debates and yet the situation is unresolved.

    So, I am delighted that some pensions industry leaders have now joined the battle to persuade the Government to stop this injustice now. NOW:Pensions has organised a group of us to sign a joint-letter to the Chancellor (see below for details).

    We are asking that the forthcoming budget should finally introduce a proper process to ensure the lowest earners – mostly women – can receive the tax relief they are currently being denied.

    This issue has the potential to destroy confidence in auto-enrolment, which has so far been a huge success. I am so pleased that more people are now recognising the injustice and pressing for reform.

    The pensions industry and the Regulator know all about it, the Treasury has been alerted to it, and absolutely nothing has been done to ensure these low earners get their money.

    Forcing the lowest earners – mostly women – to pay 25% too much for their pensions is indefensible. They need as much help as they can to build up pensions, yet they are being denied the tax relief they would have if they saved in another pension scheme. They have no way of reclaiming the money and their employer chooses the scheme so they have no control over the problem.

    The Regulator should ensure that employers are clearly warned not to enrol low paid workers into a scheme which operates on a Net Pay basis. A Net Pay scheme is not suitable for low earners.

    I proposed that the Regulator should require either the pension scheme or the employer to pay the tax relief for these low earners, if they insisted on enrolling them, but again no such requirement has been put forwards. I asked the Treasury to allow the tax relief to be paid, but they have not done this either.

    These low earners are entirely unaware of the fact that they are being charged too much for their pensions and being forced to pay 25% extra, just because of the type of administration system their employer scheme uses. With more people affected all the time , once they discover what has happened to them, who will they blame and against whom will they claim?

    Such a scandal should never have been allowed to build. Next year, auto-enrolment contributions will double, so these low earners’ losses will double too. It is time to act now, before more losses are suffered.

    I have met with Ministers, DWP and Treasury, but no-one has yet wanted to help. The answer to my Written Questions was always ‘it’s too difficult’. Well, many things in pensions are difficult, but if the will is there, there will be a way.

    I do hope that this letter to Chancellor will have the desired effect and that this injustice will be ended by reforms announced in the coming budget. The risk to the success of auto-enrolment is clear and I urge all in the pensions industry to wake up to the risks and end this scandal.

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