Pension Payment for Low paid
Tax relief for employee pension contributions to pensions schemes is given in two different ways:
The Net Pay Arrangement
This is where contributions are deducted from an employee’s pay and tax relief is given to the employee at source, applied at their marginal rate.
Relief at Source
Contributions are deducted after tax and NIC and tax relief is given to the employee at the Basic rate, claimed by the pension scheme from HMRC. Scottish taxpayers receive the equivalent Scottish Basic Rate tax relief in the same way, however higher rate taxpayers can claim the additional tax relief at their marginal rates via self-assessment.
Low earners, i.e., those that earn at or below the personal Allowance (currently £12,570) have always been impacted by the operation of Net Pay Arrangement (NPA) pension schemes in as much as where no income tax is payable on their earnings, cannot benefit from any tax relief on their pension contributions. At the time the government estimated that as many as 1.32m people, of whom around 75% were women, were impacted.
Pension changes in the Finance Bill 2022/23 set out remedial measures to address the issues affecting low earners under NPA to ensure that they would have equal access to tax relief and initially set a review date for HMRC to tackle this commencing from the 2024 – 25 tax year, by way of a ‘top-up’ payment (The Payroll Centre term, not referenced by HMRC), to align the tax relief at the personal allowance.
Following an announcement in the June 2026 edition of the Employer Bulletin, HMRC has confirmed from August 2026, they will be contacting around 1 million eligible individuals directly about the low earner’s pension payment, previously referred to as the low earner’s anomaly.
Who may be eligible
An employee may be eligible if they did not obtain income tax relief on their pension contributions in any tax year from 2024 to 2025 onwards. This would be if they meet both these conditions:
- earned close to the personal allowance in a tax year, typically £12,570
- contributed to a workplace pension through a Net Pay Arrangement Pension Scheme
HMRC will assess eligibility separately for each tax year, and individuals may qualify for one or more years, from 2024 to 2025 onwards.
Employers do not need to take any action as this will be dealt with directly between HMRC and eligible individuals, the starting point for information as taken from employer RTI submission from the FPS and other official sources of income was part of the review process. If approached by employees for support, employers/employee action points from HMRC guidance is as follows:
What employees should do
Individuals do not need to contact HMRC to receive a payment.
If employees approach you with questions, you can reassure them that:
- eligible individuals should wait to be contacted by HMRC, either by post or through their personal tax account
- once they have received contact, eligible individuals should follow the instructions provided by HMRC to accept their payment
HMRC are also advising caution in regard to remaining vigilant from scammers:
Fraud and scam awareness
As HMRC will be contacting individuals about money they are owed, employers may receive questions about whether messages are genuine. Employees can be reassured that:
- HMRC correspondence can be checked on GOV.UK by searching check if an email you’ve received from HMRC is genuine — low earner’s pension payment can be found from August 2026
- HMRC will never ask for money transfers, PIN codes, or passwords