At least a million low paid workers, many of them women in part-time jobs, will have a promised £70 pension payment delayed because of IT and admin problems, it has been revealed.
The payments are being made to workers who were not allowed to claim a tax refund on their pension contributions because they did not earn enough to pay tax. Workers entitled to the cash will be automatically contacted for their bank details so the payout can be made, but one pensions consultancy, Hymans Robertson, said it was concerned that the letters from HMRC may be ignored over fears they may be a scam.
Steve Webb, partner at pension consultants LCP and a former pensions minister said the news was disappointing for low-paid workers who he said: “Face even more delay in receiving the tax break on pension saving that most other workers take for granted”.
Corporate Adviser’s John Greenwood revealed the delays.
Corporate Adviser explained how in 2022 the Government legislated to compensate individuals who save in occupational pension schemes under net pay arrangements (NPA) but who missed out on a 20 % top-up on their pension contributions.
People earning £10,000 or more are automatically enrolled into a pension, but those on low pay will have a salary below the £12,570 personal allowance threshold for paying income tax.
While low-income savers in different pension schemes called ‘relief-at-source’ were able to get a 20% top-up to their contributions, whether they paid tax or not, those in net-pay pensions could only get the tax relief if they earned enough to actually pay income tax.
Two years ago the Government announced changes to the rules to address this inequality. following pressure from the Net Pay Action Group. The changes took legal effect from April 2024.
Peoole will be contacted automatically if they are owed the payment but they will need to confirm their bank payment details and there are fears that many may ignore the letters.
An HMRC spokesperson admitted that the payments would be delayed by a year: “The government remains committed to this policy, which will see approximately one million individuals in net pay schemes offered an annual payment of around £70. Top-up payments for individuals will be made for the 2024 to 2025 tax year and subsequent years, but the payments for 2024 to 2025 are likely to be offered later than planned — in 2026.
Steve Webb, partner at pension consultants LCP and a former pensions minister who helped introduce auto enrolment said: “It is a bizarre situation where some people on modest wages get tax relief on their pension contributions and others do not. The proposed solution to this problem is already extremely complicated and has taken years in the development.
“It is very disappointing that low-paid workers will now face even more delay in receiving the tax break on pension saving that most other workers take for granted”.