Around one million low-paid workers are being warned to watch for an HMRC letter arriving this month, as they could be entitled to money because of the way their workplace pension was previously taxed. HM Revenue and Customs has confirmed that from August 2026 it will contact around one million eligible people directly about the new Low Earner's Pension Payment. The payment is designed to correct a longstanding difference that meant some workers on lower incomes missed out on pension tax relief simply because of the type of workplace pension scheme their employer used.
Who is affected and how it works
People potentially affected typically earned around the £12,570 Personal Allowance and made pension contributions through a scheme operating a net pay arrangement. HMRC will assess eligibility separately for every tax year from 2024/25 onwards, meaning some workers may eventually qualify for payments relating to more than one year.
Thomas Drury, money-saving expert at The Investors Centre, is warning workers not to dismiss the correspondence as irrelevant, particularly if they earn too little to normally pay Income Tax. He said: “The confusing part is that many of the people affected may reasonably think pension tax relief has nothing to do with them because they don't earn enough to pay Income Tax. But that is exactly why this issue exists.
“There are different ways workplace pension schemes administer tax relief. Under relief at source, a pension provider can add basic-rate tax relief to someone's pension even where that worker doesn't actually earn enough to pay Income Tax.
“Under a net pay arrangement, contributions are taken from earnings before Income Tax is calculated. That works well for someone who actually pays tax because their taxable pay is reduced. But if your income is already below the Personal Allowance, reducing your taxable income may give you little or no tax benefit.”
Government guidance and estimated impact
Government guidance explains that workers in relief-at-source schemes can receive a 20% pension top-up even if they do not pay Income Tax, while low earners in net pay arrangements historically received relief at their marginal tax rate, which could effectively be 0%. The new payments are intended to correct that difference.
The Government previously estimated that around 1.2 million people could be affected by the underlying issue, with women expected to make up around 75% of those earning below the Personal Allowance while contributing through net pay arrangements.
“Two people could have earned a similar salary and contributed towards a workplace pension, but one could have received a better tax outcome simply because their employers used different pension arrangements.
“The new payment is intended to make those outcomes fairer.”
No application needed, but watch for scams
One of the most important parts of the scheme is that workers do not need to make an initial application or work out for themselves whether they qualify. HMRC says it will identify eligible individuals using information it already holds and contact them either by post or through their Personal Tax Account. Workers should then follow the instructions provided to accept their payment.
Thomas said: “You don't need to ring HMRC and ask to be added to a list, and you don't need to pay a company to find out whether you're eligible. If you think this might apply to you because you earned around £12,570 and contributed to a workplace pension, the sensible step is to make sure HMRC has your correct contact information and then watch for official correspondence.
“Don't throw the letter away because you assume anything from HMRC must be asking you for tax. In this instance, HMRC could actually be contacting you because it owes you money.
“It is also worth checking your Personal Tax Account rather than relying entirely on the post, particularly if you have moved house since the 2024/25 tax year.”
Eligibility is assessed individually for each year. Someone who qualified in 2024/25 but earned substantially more the following year, for example, may be eligible for one year's payment but not another.
The unusual nature of the scheme also creates a potential problem: fraudsters now have a genuine HMRC payment campaign they could imitate. HMRC has itself highlighted scam awareness because it will be contacting people about money they are owed. It says genuine correspondence can be checked through GOV.UK and that HMRC will never ask people to transfer money or disclose PIN codes or passwords.
Thomas said: “A message saying ‘HMRC owes you pension money’ might normally sound suspicious. The difficulty this month is that HMRC really is contacting around a million people about exactly that.
“That makes it even more important not to judge a message simply by whether the story sounds plausible. If a text says you are owed pension tax relief and gives you a link that expires tonight, don't let the possibility of losing the payment rush you into entering personal information.
“Likewise, nobody needs your banking password, card PIN or a payment from you in order to release money HMRC owes you.”
The official policy does require eligible individuals to confirm or provide payment details so that HMRC can make the top-up directly to their bank account. However, that happens after HMRC has identified and contacted the individual, rather than through an unsolicited claims company or a person promising to secure eligibility.
Thomas said: "The safest approach is simple. Wait for HMRC to contact you, verify the correspondence through official Government channels and follow the instructions there.
“For people on lower incomes, even a relatively modest payment matters. The worst outcomes would be either ignoring genuine money you're entitled to because you assume the letter isn't relevant, or handing sensitive financial information to a scammer because the message happens to describe a real HMRC scheme.
“If you've contributed to a workplace pension while earning around the Personal Allowance since April 2024, this is one piece of HMRC correspondence you should pay particular attention to this month.”
