HM Revenue and Customs is sending out pension tax relief letters to earners who may be entitled to a typical £70 rebate
Households across the country are currently receiving letters from HM Revenue and Customs, officials have confirmed. Anyone who receives one has been urged not to dismiss it as a potential scam — with as many as 1 million being dispatched.
The tax authority is writing to individuals to notify them that they are entitled to a rebate. Those eligible are low earners who have missed out on the money due to the way in which the pension scheme they contribute to is managed.
HM Revenue and Customs (HMRC) will be contacting people over the coming months, setting out how they can claim the payment. Most recipients will be owed around £70, though this figure may vary considerably.
The government department confirmed the funds would be directed towards low earners who have missed out on tax relief, with 75% of recipients believed to be women.
Certain low earners whose employer operated what is known as a Net Pay Arrangement pension scheme received less than those whose pension was managed through a Relief at Source scheme.
Employees have no say over which type of scheme their employer uses, so the government has decided to compensate those who have lost out through what is referred to as a low earner’s pension payment.
To qualify, individuals would typically need to have earned close to, but no more than, £12,570 per year — the threshold at which income tax becomes payable. As they are not taxpayers, their tax bill cannot be reduced, so they will receive a direct payment instead.
Former pensions minister Steve Webb warned: “The process of getting these payments to the right people is going to be incredibly painful, and there is a real risk of huge non-take-up.”
He added: “Most people will not have a clue about this issue and may be suspicious of a letter out of the blue from HMRC offering them free money. Some may suspect it is a scam.
“The process of getting these payments to the right people is going to be incredibly painful and there is a real risk of huge non take-up.
“It is vital that communications are effective to make sure that people get the money to which they are entitled.”
The letter-writing initiative begins this month and is anticipated to run through to 2027.
Approximately one million individuals will receive correspondence from HM Revenue and Customs this month, with the crucial income threshold for those affected standing at around £12,570. The letter relates to the new Low Earner’s Pension Payment.
The scheme seeks to rectify a long-standing inequality that prevented some lower-paid workers from receiving pension tax relief, simply because of the type of workplace pension scheme their employer used. Those potentially eligible typically earned around the £12,570 Personal Allowance and paid into pensions through schemes operating a net pay arrangement.
HMRC will assess eligibility separately for each tax year from 2024/25 onwards, meaning some workers may eventually receive payments spanning multiple years. Thomas Drury, money-saving expert at The Investors Centre, is encouraging employees not to dismiss the correspondence as irrelevant, particularly if their earnings are below the Income Tax threshold.
“The confusing part is that many of the people affected may reasonably think pension tax relief has nothing to do with them because they don’t earn enough to pay Income Tax. But that is exactly why this issue exists.
“There are different ways workplace pension schemes administer tax relief. Under relief at source, a pension provider can add basic-rate tax relief to someone’s pension even where that worker doesn’t actually earn enough to pay Income Tax.
“Under a net pay arrangement, contributions are taken from earnings before Income Tax is calculated. That works well for someone who actually pays tax because their taxable pay is reduced. But if your income is already below the Personal Allowance, reducing your taxable income may give you”.
How can I check the letter is for real?
Customers don’t need to apply. If eligible, you’ll be sent information by HMRC – the UK’s tax authority – in a letter or through your online personal tax account, external.
HMRC will not text, email or call you about it. If you receive such a call or message, it is a scam. Also, it will never ask you to transfer money, or ask for PIN codes or passwords.
Other ways to check contact is smooth and genuine include:
- Making sure HMRC has your latest address
- Searching Gov.uk for “check if a letter you’ve received from HMRC is genuine”, and look for “Low Earner’s Pension Payment”
- HMRC also has advice on spotting a scam, external
- Customers will be asked to provide their bank details through their personal tax account. Customers who are digitally excluded will be able to phone HMRC to accept their payment instead
“We know some people may be cautious about unexpected contact, which is why we provide clear information about what to expect and how to verify the contact is genuine,” said a HMRC spokesman.
“Customers can check a letter is genuine on Gov.uk and should only respond via official HMRC channels.”
Government guidance makes clear that workers enrolled in relief-at-source pension schemes are entitled to a 20% top-up even if they pay no Income Tax. In contrast, lower earners in net pay arrangements have historically only received relief at their marginal tax rate, which could effectively amount to 0%.
The Government has previously estimated that roughly 1.2 million people may be impacted by this underlying problem, with women expected to represent approximately 75% of those earning beneath the Personal Allowance while making contributions via net pay arrangements.
Importantly, workers do not need to lodge an initial application or assess their own eligibility. HMRC has confirmed it will identify those who are entitled using existing records it possesses, reaching out to them either through the post or through their Personal Tax Account.
Those who qualify will simply need to follow the guidance given to claim their payment.
“You don’t need to ring HMRC and ask to be added to a list, and you don’t need to pay a company to find out whether you’re eligible.
“If you think this might apply to you because you earned around £12,570 and contributed to a workplace pension, the sensible step is to make sure HMRC has your correct contact information and then watch for official correspondence.
“Don’t throw the letter away because you assume anything from HMRC must be asking you for tax. In this instance, HMRC could actually be contacting you because it owes you money.
“It is also worth checking your Personal Tax Account rather than relying entirely on the post, particularly if you have moved house since the 2024/25 tax year.”
HMRC has said it will conduct an awareness campaign utilising social media and additional channels.
