Low earners losing out in pensions

A woman reading her fuel bill

Blog written by Christopher Brooks, Senior Policy Manager, Age UK

Since 2012, employees have been automatically enrolled into their employer’s pension scheme, which has meant that nearly 10 million people are now saving for their later life than before. The individual, employer and government all make a contribution, and this co-funding arrangement will in most cases benefit the employee, who can still opt out of the scheme if they wish.

At present, the saving contribution is 5 per cent of someone’s relevant salary (earnings between lower and upper earnings limits), but this will rise to 8 per cent in April 2019.

Auto-enrolment’s success is good news – in years to come it will help many older people have a higher income that they would have otherwise enjoyed, and Age UK continues to support it.

‘Net pay’ can mean ‘not paid’

But one anomaly in how the government contributions are administered has become even more significant with the increasing numbers of lower-income pension savers, and according to the Low Incomes Tax Reform Group this is leaving 1.2 million savers worse off. All of these people are lower earners, who find that they are paying themselves for the Government contribution – hugely unfair and in breach of the promise for the Government to help people save.

The explanation is fairly technical, but it goes something like this:

1) Employers use two types of payroll system for making their pension contributions, known as ‘Net Pay Arrangements’ and ‘Relief at Source’ (RAS). Under RAS arrangements, the Government contribution is automatically claimed on your behalf, by the pension company and added to your pension plan and everyone gets this regardless of their salary.

2) Under Net Pay Arrangements, the tax relief that pension saving attracts is administered by the employer, who takes the pension payments from your gross (total) pay, reducing your taxable income and therefore the tax you pay. But this means that if you don’t pay income tax, you don’t get tax relief. In effect, you yourself would be paying the Government’s contribution – nice for the Treasury, not so good for you.

This problem only affects savers in ‘Net Pay Arrangements’ who earn under the income tax personal allowance (currently £11,850) – i.e. they don’t pay income tax.

At the moment it means low earners are missing out on £35 a year, but increases in pension contribution rates and the income tax personal allowance will mean it rises to £58 in April 2019. For someone on a low income, this can be a significant amount of money.

Putting an end to it

Age UK has recently joined forces with other organisations and senior figures from the pensions industry to campaign against this. The open letter sent to the Chancellor, Philip Hammond MP, earlier this month received widespread media coverage, and there are already signs that the Treasury is looking to resolve the issue.

Alongside the other organisations involved, we will remain active on this until we get a satisfactory resolution.

Hopefully, we can help get some fairness for lower earners, enable them to stay in the pensions system, and enjoy the fruits of their savings when they reach retirement.

Pension scams: not quite there yet


From medieval conmen persuading people to hand over hard cash for worthless ‘holy relics’, to Charles Ponzi promising amazing returns on the back of earlier victims’ money,  fraudsters have always been with us and probably always will be. While this is all too true, we can make life a lot tougher for fraudsters – but we need to move rather faster than we have done to date. Continue reading “Pension scams: not quite there yet”

The ‘triple lock’ and intergenerational fairness

Gordon and Margaret

Today Age UK launches its General Election campaign – Dignity in Older Age (www.ageuk.org.uk/generalelection) – which aims to tackle some of the key issues that millions of older people continue to face. Things like difficulties accessing the care and support they so desperately need, living in poverty and struggling to make ends meet, and facing a later life of loneliness.

Throughout the campaign we’ll be covering some of the issues in depth, beginning with Caroline Abrahams on why having a decent income in later life is so important.

What’s the State Pension worth on average? Not surprisingly, most non-retired people don’t know, and the result is that when the ‘triple lock’ is discussed some rather important contextual information like this is usually absent.

Continue reading “The ‘triple lock’ and intergenerational fairness”

Review of State Pension Age Report

After over a year of looking at a wide range of evidence, and meeting many individuals and organisations, John Cridland’s Independent Review of the State Pension age has published its final report. John Cridland was tasked by the Government to make recommendations around a ‘fair and sustainable’ State Pension age (SPA) from 2028 onwards.

Continue reading “Review of State Pension Age Report”

Guest blog – Employing a personal care assistant


This week we have a guest blog from The Pensions Regulator which highlights that all employers, including the smallest employers such as those that employ personal care assistants, should check if they need to provide a workplace pension.

As the Pensions Regulator our job is to ensure that pension schemes are adequately funded and run in the best interests of retirement savers – and that employers meet their obligations by enrolling eligible staff into a pension scheme and making contributions. Continue reading “Guest blog – Employing a personal care assistant”

WASPI women march on Parliament

Hundreds of women are planning to travel to Westminster today to complain to the government and their MPs about unfair changes to their state pensions. Major changes made through successive Pensions Acts in past years mean that women born in the 1950s have seen several changes to the date at which they will receive their pensions. These changes mean that the date a woman can start to claim her pension may be quite different from that of a woman who is just a little bit older or younger. These women could legitimately think government policy on pensions is unfair and the way the changes have been communicated to them has been a shambles. Continue reading “WASPI women march on Parliament”

Building a savings culture

Photo credit: Images_of_Money (Flickr Creative Commons)

Last month Age UK held a small discussion event with Pensions Minister Ros Altmann, hosted by the think tank Reform. The purpose of the meeting was to have a frank conversation with representatives from the pensions industry, consumer groups and trade unions about the need for more people to save more for their retirements.  Continue reading “Building a savings culture”