"However, this ultimately means they will lose out on potential growth by not having the money held in the pension fund and invested.
"This solution also creates a risk of delay between the pension contribution being made and receiving the top-up.
"It’s been a long road to get to this point, and there are still some miles to go before this quirk in the pension tax system is finally addressed.”
Kate Smith, head of pensions at Aegon, says the government must work closely with the pension industry, specifically with affected schemes, to raise awareness of this issue so low earners do not miss out on the tax top-up when it eventually becomes available.
She adds: “The process for claiming the top-up needs to be as easy and smooth as possible, bearing in mind that this group is as likely to be the least engaged of pension savers. Ideally [HM Revenue & Customs] should automatically pay the top-up into affected savers’ bank accounts, without the need to make a claim, but this is unlikely to happen.
"To be successful, HMRC should share relevant information with providers and schemes of affected members, to help them target communications and support these savers. Without communication and support, the fear is that few people will claim this tax top-up.”
Helping the lowest paid
So, what can the industry do to help low earners while they wait years for the government’s relief to start?
Altmann suggests many practical steps employers can take to help the lowest paid workers within the workplace pension sector.
She says: “The best thing for lower paid workers is for their employer to choose to use one of the excellent workplace pension providers who offer relief at source administration, so that these low earners are not disadvantaged by their employers’ selected scheme for the next couple of years, especially during this cost of living crisis.
"The second best would be for employers to make up the difference to the low earners by increasing their take-home pay by the amount of tax relief they have lost. This is more complex.
"Thirdly, it might be an idea for pension providers themselves to ensure these low earners do not lose out in net pay schemes, but again that is both complex and could add to losses incurred on small pots.”
Clare Moffat, head of the intermediary development and technical team at Royal London, also agrees there are many practical things employers can do to help the lowest paid workers.
She says: “The lowest earners, who are often women, are missing out in terms of tax relief but also in other ways. The £10,000 per job threshold for auto-enrolment means that those who have more than one part-time job that pays less than £10,000 are disadvantaged.
