HMRC is sending letters to an estimated one million 'lower earners' offering a free £70 payment. The tax office is contacting people who missed out on tax relief on their workplace pension contributions to let them know they are due a top-up of £70 on average on their pension.
Why the payments are being made
The payments are due to an issue with how workplace pensions are taxed. According to Martin Lewis' Money Saving Expert, those who were lower earners with a 'net pay' pension scheme in the tax year 2024-25 are now being contacted in a bid to address an 'unfairness' with the pensions scheme system.
With a 'relief at source' pension, your pension contributions are taken after your tax is calculated. It means that your pension provider claims 20% tax relief directly from the Government for every 80% you contribute, which is then added to your pension total. You get this even if your total income is below the tax-free personal allowance for income tax, which is set at £12,570 a year.
How net pay pensions differ
But with net pay pensions, your employer takes your pension contributions from your pay before tax is calculated, and those who earn below £12,570 don't get any tax relief on pension contributions, so they miss out on the 20% tax relief.
MSE says: “In a bid to address this unfairness, the Government is contacting eligible low earners – those who earned below or close to the personal tax threshold and didn't receive income tax relief on their pension contributions – in 'net pay' schemes offering them a top-up payment for the 2024 to 2025 tax year.
“The top-up payment will be equal to the amount of tax relief you would've received if you were in a 'relief at source' pension scheme. For 2024/25, payments are an average of £70, though HMRC couldn't give us the minimum or maximum payout figures.
“If you're already receiving some tax relief, you'll only get a partial top-up. This means that if your income is above the personal allowance before deducting the pension contribution, but is below the personal allowance after the contribution is deducted, you will get a partial top-up payment to make up the difference.
“The payment is not taxable and will not affect your benefit entitlement.”
How the payment will be made
Those who are affected will receive a letter from HMRC some time this year or in early 2027. This will only come in the form of a letter, not a call, text or email, and if you don't qualify you won't hear anything. HMRC will then pay you the money directly as a bank transfer, not into your pension pot itself.
