Once the level of the bonus had been calculated, which it is anticipated would be well after the end of the tax year, it would still need to be claimed by the individual entitled to it.
The government does not appear to view this option positively. The primary reasons it gives are the significant systems changes that would be introduced for savers, employers, scheme administrators, and HMRC.
Even with those complications the bonus would be paid a long time after the contributions were paid; there is the possibility that savers will not claim it; where it is claimed there will be additional costs to the Government; and the system will result in the bonus being paid to the individual rather than to their pension scheme, which is where basic rate tax relief is paid under RAS.
Option 2 – standalone charge
This proposal is broadly the opposite of Option 1.
Rather than paying a bonus to those who are worse off in net pay schemes than under RAS schemes, the proposal would involve tax relief being taken off those who are better off as members of RAS schemes.
To work it would rely on more information about earnings being provided to scheme administrators about an individual’s earnings.
Administrators of RAS schemes would then be required to pass this information on to HMRC in addition to the annual information they already provide about the level of pension contributions they’ve received.
The call for evidence appears to assume this information will be provided to administrators by employers, ignoring the fact that many personal pension schemes are established without the involvement of an employer.
Most Sipps are set up and run by members without the employer having any reason to even know that the pension exists.
The Treasury’s main concern with this option is that it would involve taking back tax relief from the lowest earners, which doesn’t seem particularly consistent with the government’s broader ‘levelling up’ aim.
In addition, the option would introduce additional complexity for scheme administrators.
Option 3 – Employers operate multiple schemes
As the name suggests, this proposal would involve employers offering both a net pay scheme and a RAS scheme, with employees contributing to the scheme which results in the best outcome for them based on their earnings.
For savers, scheme administrators and HMRC this option appears to be a less complex solution than either of the first two options.
However, the government sees it as placing such a significant additional burden on employers and so only a proportionate solution for large employers with a significant number of lower paid employees.
