The UK government is set to issue refunds to around one million individuals who are owed pension tax relief, primarily low earners and often women. The payments are a correction for instances where employers used a 'Net Pay Arrangement' pension scheme, resulting in less tax relief for some individuals compared to those in 'Relief at Source' schemes.
Employees have no control over which pension scheme their employer uses. The government has decided to rectify this disparity by providing a top-up payment, referred to as a low earner's pension payment, to those who have missed out. These individuals typically earned close to, but not exceeding, the income tax threshold of £12,570 annually.
The top-up payments will be made for the 2024-25 tax year initially. Following this, automated payments are expected to be implemented for subsequent tax years. The government's tax authority, HMRC, will be contacting the eligible individuals directly. This initiative aims to ensure fairer treatment of pension tax relief across different salary brackets and pension administration systems.