An anomaly that has excluded a significant amount of low-paid workers in Net Pay Arrangements (NPAs) from receiving tax relief in their Workplace Pension is to be rectified, the government has confirmed.
The following providers operated a Net Pay Arrangement by default:
Since 2015, people saving through an NPA have had less take-home pay compared to similar earning savers who use a relief-at-source (RAS) scheme. This is because those using the latter type of pension scheme receive a 20% top-up from the government on their savings, while those below the income tax threshold (£12,570 per annum) using NPAs receive tax relief at their marginal rate of 0%.
The new change will benefit the average worker in this situation with an extra £53 a year.
These top-ups will be paid directly into the bank accounts of those entitled to the benefit from 2025, and HMRC will notify those who are eligible.
This tax flaw means some non-taxpayers (those earning £12,570 a year or less) could retire with a pot worth thousands of pounds less than others with equivalent earnings. This is purely down to chance of whether individuals are in an NPA scheme (often chosen by their employer), thereby foregoing the benefit of government funded tax relief into their pension, while others in the RAS scheme do receive the top up.
Although beneficiaries will be notified by HMRC if they are eligible to claim the top-ups, it is still the responsibility of the individual to claim it.