Payments of £70 due to a million low earners in net-pay pension schemes have been delayed by a year because of IT and administration delays, Corporate Adviser can reveal.
In 2022 the Government said it would legislate to compensate individuals who save in occupational pension schemes under net pay arrangements (NPA) who miss out on a 20 per cent top-up on their pension contributions.
The Government estimates 75 per cent of those affected are women.
The payments are designed to compensate low earners who miss out on a 20 per cent top-up to their pension contributions because they are in schemes set up on a ‘net-pay’ basis rather than in a ‘relief-at-source’ scheme.
People earning £10,000 or more are automatically enrolled into a pension, but this figure is below the £12,570 personal allowance threshold for paying income tax.
While savers in ‘relief-at-source’ schemes receive a 20 per cent top-up to their contributions whether they pay tax or not, those in net pay arrangements only benefit from tax relief if they earn enough to actually pay income tax.
Two years ago the Government announced changes to the rules to address this inequality. following pressure from the Net Pay Action Group. The changes took legal effect from April 2024.
The Government says individuals will not need to confirm their entitlement as HMRC will identify those eligible individuals based on information already provided. It says it will write to individuals who will need to confirm or provide their payment details via a digital service for the top up payment to be made.
Government projections predict IT and operating costs of £38m to implement the policy. In 2023 the Government predicted an estimate cost to the Treasury of £10m in 2025/2026, rising to £15m in 2026/2027. While some of the cost will be mitigated by a reduction in means-tested benefits and other reliefs, this suggests less than half of eligible workers will actually receive the payments.
Around a third of UK multi-employer DC providers operate on a net-pay only basis. Most single employer DC schemes also operate on a net-pay basis.
An HMRC spokesperson said: “The government remains committed to this policy, which will see approximately one million individuals in net pay schemes offered an annual payment of around £70. Top-up payments for individuals will be made for the 2024 to 2025 tax year and subsequent years, but the payments for 2024 to 2025 are likely to be offered later than planned — in 2026.”
