1 million people to get an average £70 pension boost

HMRC is contacting around 1.32 million people who may have missed out on pension tax relief because of the way their workplace pension scheme was set up.

Around 75% of those affected are expected to be women.

Why are the letters being sent?

Pension tax relief is money the government gives you to encourage you to save for retirement. It means you get tax relief on money you put into your pension — either by getting back tax you’ve already paid or by paying less tax in the first place.

These missed payments that have been identified have occurred because there are two main ways people’s workplace pensions can receive tax relief.

With ‘relief at source’, tax relief is automatically added to your pension. So if you pay £80 into your pension, HMRC automatically adds another £20, topping it up to £100.

But some workplace pensions use a ‘net pay arrangement’. With this system, contributions are taken from your salary before tax is calculated.

That can create a problem for people earning below the tax threshold, because they don’t pay income tax in the first place. That can mean people can miss out on the tax relief they’re entitled to.

Importantly, you don’t have to pay income tax to receive pension tax relief. If you earn below £12,570, you can still receive tax relief on pension contributions of up to 80% of your earnings.

So, someone earning £12,000 who contributes 5% of their salary — £600 — could have £120 added by HMRC under relief at source. The £600 contribution would effectively cost them £480 because £120 of it comes from HMRC.

However, under a net pay scheme, the same worker could have the full £600 taken from their salary, with no tax relief added.

What is HMRC doing to redress this?

HMRC are currently in the process of sending out letters to those they think have lost out this way. They have estimated that the typical payment those affected will receive is £70, although the amount each person receives will vary depending on their earnings and pension contributions.

What can you do if you think you may be affected?

Look out for a letter from HMRC. It will tell you how much you are due and how you will receive it.

If you don’t receive a letter from HMRC but think you could have missed out on pension tax relief, either contact HMRC directly, your pension provider, or speak to an independent financial adviser.