HMRC is contacting customers about the net pay anomaly affecting low-paid workers, urging Brits to check if they are eligible for a little-known pension perk.
Those in a higher tax bracket enrolled in “relief at source” pension schemes could be missing out on thousands of pounds by failing to claim. This is because these schemes only apply 20% tax relief, leaving those paying more to reclaim the difference.
How relief at source schemes work
A higher-rate taxpayer receives 40% relief without lifting a finger. Contributions come from post-tax earnings, and the pension provider reclaims only 20% basic-rate relief from HMRC to top up the pot.
For anyone paying tax above the basic rate, this leaves a gap that must be actively pursued. Consider a worker earning £60,000 who puts £1,000 into a relief-at-source pension.
Higher earners could claim thousands
Their provider claims the standard 20% top-up from HMRC, meaning only £800 leaves their pay packet while £1,000 lands in the pot.
Charlene Young, head of technical at AJ Bell, said: “HMRC is finally reaching out to lower earners to correct the net pay anomaly and there has, understandably, been a lot of focus on ensuring the lowest paid aren’t missing out on crucial pension tax perks.
“But they are not the only pension savers who risk being short-changed if they mistakenly assume pension tax incentives are taken care of automatically. Higher earners may need to claim tax relief too and could be missing out on thousands if they don't.
“Most employees will be saving into a pension by default thanks to auto-enrolment, with many people assuming that they're getting the full tax relief they're entitled to and that this is all handled by their pension provider, or their employer.”
Winter Fuel Payment letters due
This comes as the Department for Work and Pensions sends letters to pensioners next month about a payment. The pensioners are set to find out how much they will receive through this year's Winter Fuel Payment.
The annual, tax-free lump sum is designed to help older Brits pay their heating bills during the colder months. It is worth between £100 and £300 this year, depending on your age, household setup, and personal circumstances.
