HM Revenue and Customs (HMRC) is preparing to contact low-paid workers who could be entitled to a new payment because of the way tax relief has been applied to their workplace pension contributions. The payments are designed to address a long-standing difference affecting some lower earners who save into workplace pension schemes using what is known as a net pay arrangement.
Payments to begin in coming months
HMRC has confirmed that payments relating to pension contributions made during the 2024/25 tax year will begin in the coming months, with the rollout continuing throughout the rest of 2026 and into early 2027. The update was included in the latest HMRC Pension Schemes Newsletter.
People will not need to make an application or contact HMRC to find out if they qualify. HMRC will identify eligible workers and contact them either by post or through their Personal Tax Account. They will then be given instructions explaining how to accept the payment.
Who could get a payment?
The new system is intended to help lower earners contributing to workplace pensions operating under net pay arrangements. There are different ways tax relief can be provided on workplace pension contributions.
Under a net pay arrangement, pension contributions are deducted from someone's pay before Income Tax is calculated. This means workers who pay Income Tax automatically receive tax relief on their contributions. However, someone whose earnings are below or close to the Personal Allowance may not pay enough Income Tax to receive the full benefit of that tax relief.
This has meant some low-paid workers using net pay arrangements have received less support towards their pension savings than equivalent workers whose pension schemes operate relief at source. The new payments are intended to address that difference.
HMRC has previously explained that people may be eligible where they have not received Income Tax relief on pension contributions because their taxable income is below the Personal Allowance. The standard Personal Allowance is currently £12,570, although an individual's circumstances can affect the amount of income they can receive before paying tax.
How will the payments work?
HMRC will use information it already holds to identify eligible people and calculate how much they should receive. Entitlement will be assessed for each individual tax year, starting with contributions made during 2024/25. The amount received will therefore depend on the person's circumstances and pension contributions rather than everyone receiving the same fixed sum.
Regulations covering the new system have also been introduced to ensure the payments do not reduce people's entitlement to means-tested benefits. Employers and pension scheme administrators do not need to calculate the payments or apply on behalf of their workers.
HMRC said in its latest newsletter: “Individuals do not need to contact HMRC. Eligible individuals should wait to be contacted by post or through their personal tax account and follow the instructions provided to accept their payment.” The department said it will begin making the first payments in the coming months before gradually expanding the rollout during the remainder of 2026 and into early 2027.
