HMRC urges pension savers to look out for letter with payout 'most won't claim'

Thousands of workers on low incomes will be getting letters from HMRC making them aware they are entitled to extra pension top-up cash but there are fears many will not claim the money they are owed.

However pension consultancy Hymans Robertson is warning many of the workers will ignore the letters which are being sent out following changes in how tax relief is paid to those in a workplace pension and earning less than the annual threshold of £12,570. Hymans said that 75 per cent of those eligible for the payments are women who tend to dominate part-time and lower-paid roles.

The changes relate to workers earning less than £12,570 whose employer set them up with a pension on a so-called "net pay arrangement" (NPA).

Until this year employees in this type of scheme were unable to claim back 20% on any payments made into a pension. But this was felt to be unfair because some low paid workers are in pensions known as "relief at source" (RAS) and these employees do get tax relief even though they are also earning less than £12,750.

The changes mean HMRC now pays an extra 20%, so tax relief, on any amount paid into a pension but rather than paying into the pension HMRC is wanting to make the payments direct into bank accounts.

will begin writing to those eligible and requesting their bank details in order to make the payment.

Hymans Robertson says employers need to make sure their low paid staff are aware they are getting a letter from HMRCbecause they may regard the letter with suspicion and then miss out on the tax relief.

Hannah English, head of DC corporate consulting, Hymans Robertson, pointed out that the extra cash was not coming from employers.

She said: "Employers should seize this unique opportunity to give their employees a boost of income without any expense on their balance sheet. It's an easy step for employers who are facing stagnating growth, and an increase in national insurance contributions, to help their staff.

"Staff could easily disregard a letter from HMRC and miss out on the top-up, which would provide additional income during the current cost-of-living crisis.

"While this small detail may not sound like it has the potential to move the dial on the gender pay gap, it could certainly nudge it in the right direction. If all those eligible for these top-ups claim them - three quarters of whom are women - this could see a positive shift in the gender pay discrepancy.

She said HMRC has signalled its expectation that most people will not claim their money. If everyone eligible for these payments claims them, it would cost HMRC £84m a year. The amount HMRC has budgeted for these payments is around one-eight of that: £10m for this tax year, and £15m for the following tax year.