Solution to Low Earner Pension Tax Relief Issue

Published / Last Updated on 24/06/2019

A meeting is to be held between Treasury Officials, the Government and the director of policy at Now Pensions, Adrian Boulding, to discuss low earner pension tax relief.   There are concerns that people with low incomes are missing out on tax relief when they are enrolled into a workplace pension scheme.

The issue:  Many company pension schemes accept Employee contributions via a Net Pay arrangement.  In short, your pension payment is deducted from your gross pay (before income tax calculated/deducted) and you receive your net pay only paying tax on your reduced pay amount after the pension contribution i.e. you get tax relief on your pension via a reduced tax bill in you pay packet. This means that if you are a low earner (below the personal allowance £12,500) and pay no income anyway, you will therefore get no tax relief on your pension contribution.  Unlike personal pensions, when you pay into the pension scheme directly and the pension company adds 20% tax relief even if you are a lower earner.

A plan from the Chartered Institute of Taxation that has been suggested by The Low Incomes Tax Reform Group (LITRG).  The plan would look at including the calculations in the P800 system plus the employer information given to H M Revenue & Customs (HMRC).  HMRC computers would then be able to calculate if the employee has paid the correct amount of tax.

Once HMRC has calculated and checked for any unrelieved net-pay contributions, a 20% tax refund could be given on the employee’s contributions.

Non tax paying pension scheme members are granted basic rate tax relief of 20% on their pension contributions of up to £2,880 a year.  This means a gross pension contribution of £3,600.

This tax relief would only be available for net pay arrangement schemes and not for relief at source pension schemes.


Low earners could be missing out on £111 million in tax relief for 2019/20 without this fix.

Explore our Site

Money MOT
T and C