Millions of low income earners are expected payments from HMRC after missing out on pension tax relief due to workplace administrative.
Around a million workers could be in line for a payment from HMRC after missing out on money linked to their workplace pension.
The average payment is expected to be around £70, although the amount will vary depending on how much each person earned and paid into their pension.
The payments are being made because of a quirk in the way some workplace pensions give us tax relief. It meant some people who earned too little to pay Income Tax ended up worse off simply because of the pension scheme their employer used.
Now HMRC is putting that right. If we could be affected, we should look out for a letter from HMRC explaining what happens next.
Why did we miss out?
When we pay into a pension, we can usually get something called pension tax relief. It is basically a government boost to help our pension savings.
For example, with some pensions we might pay in £80 and then HMRC adds another £20, giving us £100 in our pension.
But workplace pensions don’t all work in the same way.
Some use what’s called a net pay arrangement. Our pension contribution comes out of our wages before Income Tax is calculated. If we’re paying Income Tax, this normally saves us money.
But if we earn too little to pay Income Tax in the first place, there’s no tax bill to reduce. That meant some lower-paid workers missed out on the benefit that people in other pension schemes received.
Who could get a payment?
We could be affected if:
- we paid into a workplace pension
- our pension used a net pay arrangement
- our taxable income was below the Personal Allowance –currently £12,570 a year
- we made pension contributions from the 2024/25 tax year onwards.
We don’t need to know what type of pension we have straight away. Our employer or pension provider can tell us whether it uses a net pay arrangement.
How much could we get?
The amount will be different for everyone because it depends on how much we earned and how much we paid into our pension.
The idea is to give us the money we missed out on because of the way our workplace pension was set up.
And importantly, the money will be paid to us directly rather than going into our pension pot.
Do we need to claim?
No – not yet.
HMRC says it will work out who’s eligible and contact us directly, either by letter or through our Personal Tax Account.
Payments covering pension contributions made in the 2024/25 tax year are starting to be rolled out, with HMRC contacting people gradually through the rest of 2026 and into early 2027.
If we’re contacted, we should follow HMRC’s instructions to receive our payment.
Watch out for scams
Because HMRC is contacting people about money they’re owed, scammers may try to cash in too.
HMRC says it will never ask us to transfer money, hand over our PIN or give someone our password to receive the payment.
If we’re unsure whether a message is genuine, it’s safer to go directly to GOV.UK or our Personal Tax Account rather than clicking a link in an unexpected text or email.
Image: Natee Meepian/Canva
