The government has published proposals 'Pensions: relief relating to net pay arrangements' that allow HMRC to make a top-up for payments to lower-paid taxpayers who are within net-pay pension arrangements. 

Lower-paid workers, whose income is less than their personal allowance and who contribute to their Workplace pension schemes have long been at a disadvantage to taxpaying contributors. They cannot, as non-taxpayers, benefit from any tax rules which provide for tax relief at source and that is how tax relief for pension contributions is given. This group of workers receive lower net wages as a result.

Under the proposed new changes, effective from 2024/25, HMRC will make top-up payments directly to individuals who save into an occupational pension under net pay arrangements but whose total taxable income is below the personal allowance. As a result, low-earning pension savers should receive similar outcomes regardless of how their pension scheme is being administered for tax purposes.

Conditions

  • Taxpayers must be within a workplace pension scheme.
  • They must be eligible to receive a personal allowance
  • HMRC will notify those who are eligible and invite them to provide details to allow payment directly into their bank account.
  • HMRC will make the payments as soon as is reasonably practicable following the tax year in which the contribution was paid. 

According to government and published during earlier consultation, this will benefit approximately 1.2 million individuals, 75% of whom are women, who could benefit by an average of £53 a year.

Useful guides on this topic

Pensions: At a glance & index
What is a pension? Pensions are a 'tax advantaged' method of saving funds for your retirement. What are the contribution limits, allowances and rules?

Pensions: tax and planning (subscriber guide)
What tax rules apply to pensions? What tax relief is available? What tax charges can arise? What planning opportunities are there?

External links

Policy Paper Low earners anomaly: pensions relief relating to net pay arrangements


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