HMRC Contacting Low Earners About Missed Pension Tax Relief

HM Revenue & Customs (HMRC) has begun contacting around one million people who may have missed out on pension tax relief because their workplace pension scheme operates under a Net Pay Arrangement. Under Net Pay, pension contributions are deducted from earnings before income tax is calculated. This normally provides automatic tax relief at the individual’s marginal tax rate. However, for individuals earning below the Personal Allowance (currently £12,570), there is no income tax liability for the pension contribution to reduce. Consequently, these workers do not receive tax relief on their contributions.

By contrast, under a Relief at Source arrangement, contributions are taken after tax, and the pension provider claims a 20% basic-rate top-up directly from HMRC and adds it to the pension contribution. This means that even someone who does not pay income tax can receive the 20% basic-rate top-up.

The introduction of the Low Earner’s Pension Payment is intended to address this difference and ensure that lower-paid pension savers receive a more consistent level of tax relief, regardless of whether their workplace pension uses a Net Pay Arrangement or Relief at Source.

Who is affected?

HMRC estimates that around 1.2 million people are eligible for top-ups, with roughly three-quarters expected to be women.

You may be eligible if you:

• Contributed to a workplace pension using a Net Pay Arrangement; and
• Had total taxable income below (or close to) the Personal Allowance in the relevant tax year.

Eligibility applies from the 2024/25 tax year onwards and is assessed separately for each tax year, meaning some individuals may be entitled to payments covering multiple years.

How much could you receive?

HMRC estimates that eligible individuals will receive around £70 per year on average, although the actual amount will depend on their pension contributions and individual circumstances.

The top-up is paid directly to the individual and is intended to address the difference in tax relief received under the two arrangements. It does not change how workplace pension contributions are made.

What do you need to do?

HMRC will identify potentially eligible individuals and contact them directly, rather than individuals needing to make a claim.

HMRC’s latest guidance confirms that eligible individuals should wait to be contacted, either by post or through their Personal Tax Account. Once contacted, they should follow the instructions provided to receive the payment. There is no need to contact HMRC in advance or ask their employer or pension provider to make a claim on their behalf.

Payments relating to contributions made during the 2024/25 tax year will begin in the coming months, with HMRC taking a phased approach to the rollout through the remainder of 2026 and into early 2027.

HMRC has also confirmed that it will never ask individuals to transfer money in order to receive the payment, nor will it ask for PINs or passwords.

If you receive any correspondence from HMRC regarding this and would like help understanding what you need to do, please do not hesitate to get in touch with a member of the team.