HMRC is sending ONE MILLION letters to low earners offering pension cash boost – will you be able to claim?

HMRC has launched a huge letter-writing campaign to reach up to one million low-paid workers who may have missed out on valuable pension top-ups. The taxman began sending out the letters this month, with the scheme rolling out gradually and continuing into early 2027. Around three quarters of those affected are thought to be women, and payments could start landing “in the next few months” once claims are processed. Experts have suggested the average payout could be around £53 a year, though the exact amount will depend on individual pension contributions. Sign up for the Money newsletter Thank you! The issue stems from the way pension tax relief is handled differently depending on the type of scheme a saver uses. Workers who pay into a personal pension usually benefit from a system called relief at source, where HMRC automatically tops up contributions with basic rate tax relief, even if they earn too little to pay tax. So, for example, an £80 contribution out of take-home pay gets a £20 top-up from HMRC. But many workplace pensions instead use something called the net pay arrangement, where contributions are taken from wages before tax is calculated. For example, someone who pays £100 into a pension through this route gets £100 in their pension pot, but if they are a basic rate taxpayer they save £20 in income tax (because their taxable income is reduced) and the contribution costs them £80. Where people are in the basic rate tax band, the two approaches generally amount to the same thing. Most read in Money Get FREE pension advice and boost your pot by £1,000s *If you click on this link we will earn affiliate revenue Sticking with your current provider could cost you thousands of pounds in retirement. That’s why Pense is offering free pension advice for people with pots of all sizes – whether it’s a drawdown or annuity. Speak to one of their specialists to get a detailed breakdown of your options. Book your free consultation NOW Pense Ltd is authorised and regulated by the Financial Conduct Authority number 231629. Under automatic enrolment, people earning at least £10,000 a year may be enrolled in a workplace pension, even if they do not earn enough to pay income tax. Lower earners who do not pay tax still receive a government top-up if their pension scheme uses relief at source. However, if the scheme uses a net pay arrangement, they miss out on tax relief because reducing their taxable income does not reduce their tax bill. Since staff have no say over which system their employer uses, ministers have decided this unfairness must be fixed by letting workers claim the money owed to them. HMRC will contact eligible people about the 2024/25 tax year first, before setting up a more automated system to cover future years. Steve Webb, partner at pension consultants LCP, said: “It is clearly unfair that around one million low earners have missed out on pension tax relief, simply because of the way in which their workplace pension is administered.” 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. “It is vital that communications are effective to make sure that people get the money to which they are entitled.” Comment now