HMRC has removed its online pensions relief calculator after it gave savers incorrect information and potentially cost them tax relief.
The issue relates to a web page which allows users to check their annual pension savings allowance. The error was spotted by tax experts at Royal London. HMRC admitted in writing to the mistakes, and finally removed the page in question.
“This time round, we identified the problem, we contacted them and they apologised - but they left it up,” explained Steve Webb, Royal London’s head of policy and the ex-minister of state for pensions.
When Royal London raised the issue with HMRC on 16 April, the tax authority said it was “aware that since 6 April 2018 the Annual Allowance calculator is showing less annual allowance than is due for the year 2017/18 onwards”, and it would fix the issue as soon as possible.
“When we went to the media, that’s when they finally took it down,” said Webb. “That’s unacceptable. People can use the site and act upon it. They could look at the number and make an important financial decision.”
This isn’t the first time HMRC has responded slowly to a pensions error. Last year, it admitted to a different problem with the same website. The September 2017 Pension Schemes Newsletter acknowledged “an error in carrying forward unused allowance from 2012/13”, but the issue wasn’t fixed until the November 2017.
In the interim period the website continued to provide incorrect data for some taxpayers. “If you go to a government site, you just expect it to be right,” said Webb. “It’s inconceivable that it wouldn’t be right.”
The latest error is made worse, according to Webb, by the fact that calculators are an important tool as pensions tax relief has become complex. For most taxpayers pension contributions of up to £40,000 per year qualify for tax relief.
But since 2016/17, higher earners have been subject to a reduced allowance which can fall to as little as £10,000 per year. To limit the impact of this change, taxpayers affected by the change can carry forward unused annual allowances from up to three years earlier.
This was the calculation that the HMRC tool was getting wrong, leading to individuals wrongly believing that they should stop saving into a pension because they have exceeded their annual limit. According to Royal London, one customer who used the site was told that he was limited to £10,000 in pension contributions for 2018/19, when the correct figure was around £35,000.