HMRC Contacts 1m Over Low Earner’s Pension Payment

HMRC said in June that it would begin contacting around one million low-paid workers from August about the low earner’s pension payment, a top-up worth 20% of a year’s workplace pension contributions. The department set out the timing in its June 2026 employer bulletin, describing it as the fix for what was previously called the low earner’s anomaly.

The figures behind the campaign:

• Around 1 million people are due to be contacted from August 2026, according to HMRC’s June 2026 employer bulletin.
• The top-up is worth 20% of gross workplace pension contributions for a tax year in which total taxable income fell below the £12,570 personal allowance.
• Treasury figures published in July 2022 put the average gain at £53 a year, with about 200,000 people in line for £100 or more. Three-quarters of those set to benefit are women.
• Eligibility is assessed separately for each tax year from 2024 to 2025 onwards, so some people may qualify for more than one year.
• Payments are not automatic. Recipients have to accept the offer and give HMRC their bank details, and the Low Incomes Tax Reform Group understands they have four years from the end of each tax year to do so.

Why some low earners missed out

Workplace pension schemes give tax relief in one of two ways, and the choice has mattered a great deal to the lowest paid.

Under a net pay arrangement, the employer takes the pension contribution out of gross pay before PAYE is applied. Relief arrives automatically at the employee’s marginal rate of tax.

Under relief at source, the contribution comes out of pay after tax has been calculated. The pension provider then reclaims basic rate tax from HMRC and adds it to the member’s pot.

For most employees the two routes produce the same outcome. For someone earning below the personal allowance they do not. HMRC’s policy paper on the measure notes that savers in relief at source schemes get a 20% government top-up even where they pay no income tax.

Net pay savers get relief at their marginal rate, which for a non-taxpayer is nothing at all.

The Low Incomes Tax Reform Group (LITRG), which has campaigned on the issue since 2018, illustrates the gap with a worker earning £950 a month who pays £25 a month into a net pay scheme.

In a relief at source scheme the same monthly contribution would have cost that worker £20 rather than £25, leaving them roughly £60 a year better off.

Announcing the draft legislation in July 2022, the then Financial Secretary to the Treasury, Lucy Frazer, said the government was “correcting this injustice so low earners will get the same level of government support.”

How the low earner’s pension payment is worked out

The legal basis is section 193A of the Finance Act 2004, inserted by section 25 of the Finance (No. 2) Act 2023.

The section requires HMRC to pay eligible individuals the tax relief they missed, as far as it practically can, on contributions made from the 2024 to 2025 tax year onwards.

HMRC’s employer bulletin sets two conditions. The employee earned close to the personal allowance in the tax year, typically £12,570, and contributed to a workplace pension run as a net pay arrangement.

The Local Government Pension Scheme is one such scheme, and LITRG says net pay is used by many workplace pensions, including those set up under auto-enrolment.

Where total taxable income for the year fell below the personal allowance, LITRG says the top-up comes to a fifth of what the employee put in over that year. Where income sat above the allowance before the contribution but below it afterwards, some relief has already been given through payroll, so the top-up is restricted to avoid relief being given twice.

LITRG’s worked example takes an employee paid £950 a month through 2024 to 2025, or £11,400 for the year, who contributed £25 a month.

His contributions came to £300 and his income was below the allowance both before and after they were deducted, which gives a full top-up of £60.

That is roughly the scale involved. The Treasury put the affected population at 1.2 million when the draft legislation appeared. Of those set to benefit, it placed 12% in London and 11% across Merseyside and the North West.

That same 2022 announcement pencilled in payments from 2025, a year earlier than they have arrived.

The tax position, and what is still unsettled

The tax treatment is less clear-cut than the arithmetic. The government’s policy paper on the measure states that the payments are chargeable to income tax. LITRG’s guidance, updated in April 2026, says the payment is not taxable.

For most recipients the distinction may make little practical difference. Eligibility depends on total taxable income falling below the personal allowance, which typically leaves unused allowance far greater than a top-up measured in tens of pounds.

Anyone whose income sits close to the threshold may want to check their own position.

LITRG also says the payment should not affect benefit entitlement, including universal credit, although anyone relying on means-tested support may prefer to confirm that with a benefits adviser.

The group has been careful to add that the final details of how the rules apply were still being finalised, so the mechanics set out here reflect current best understanding rather than settled guidance. LITRG and GOV.UK are the places to watch for changes.

What to do if HMRC contacts you

If you think you may be affected, the process is largely one of waiting and then responding.

1. Wait to be contacted. HMRC says eligible individuals do not need to apply or get in touch, and that contact comes either by post or through your personal tax account. There is nothing to gain from ringing ahead.
2. Check the contact is genuine. HMRC said in June that the payment would be added to its published lists of genuine contact from August. As at 19 August it had not yet appeared on either the HMRC list of genuine letters or the equivalent list for emails. A letter may therefore be real even if it is not listed there yet. The safer check is to sign in to your personal tax account yourself. HMRC says it does not ask anyone to transfer money or hand over a PIN or password.
3. Accept the payment and supply your bank details. LITRG understands this can be done through your personal tax account or by telephone, and that HMRC will not issue these payments by cheque. The money is paid to you, not into your pension pot.
4. Expect to do it again. Each tax year is assessed on its own, so a further letter covering 2025 to 2026 may follow later. LITRG understands bank details are not carried over and have to be supplied each year. The Treasury suggested in 2022 that later payments might not need them again, so this one is worth watching.
5. Do not pay anyone to claim it. HMRC identifies eligible people itself, so no claims firm is involved. The charity TaxAid gives free advice to people on low incomes, usually those earning under £30,500. LITRG publishes free guidance online but does not advise individuals, and HMRC’s helplines are free to call.

The two relief methods matter at the other end of the income scale too, where higher rate taxpayers in relief at source schemes often have to claim the extra relief themselves. The Tax Rebate Services guide to pension tax relief explains how that works and how far back a claim can go.