Around 1 million people are receiving a letter this month from HM Revenue and Customs – with the key income for those being paid around \u00a312,570. The information is about the new Low Earner\u2019s Pension Payment.<\/p>\n
It 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.<\/p>\n
People potentially affected typically earned around the \u00a312,570 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.<\/p>\n
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.<\/p>\n
\u201cThe confusing part is that many of the people affected may reasonably think <\/a>pension tax relief has nothing to do with them because they don\u2019t earn enough to pay Income Tax. But that is exactly why this issue exists.<\/p>\n \u201cThere are different ways workplace pension schemes administer tax relief<\/a>. Under relief at source, a pension provider can add basic-rate tax relief to someone\u2019s pension even where that worker doesn\u2019t actually earn enough to pay Income Tax.<\/p>\n \u201cUnder a net pay arrangement, contributions are taken from earnings before Income<\/a> 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<\/p>\n 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.<\/p>\n 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.<\/p>\n \u201cTwo 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.<\/p>\n \u201cThe new payment is intended to make those outcomes fairer.\u201d<\/p>\n \u2022 Expert says anyone who had children from 1978 – 2010 ‘could be in line for \u00a38,000’<\/a><\/p>\n