Following concerns expressed to government on a purported tax relief anomaly between the Net Pay Arrangement where tax relief at the employees prevailing tax rate is given versus Relief At Source where a 25% top up is applied regardless.
The government was concerned about the potential for a low-earning individual’s take-home pay to be affected by the method of pensions tax relief operated by their pension scheme. The government was keen to explore the issue to understand what deliverable options for change may exist.
Following the March 2021 budget a call for evidence was undertaken.
Wednesday 27th October 2021, aligned with the Autumn Budget 2021, the government have announced the outcome proposals following the call for evidence.
Pension top up for low earners on NPA
In order to better align outcomes for low-earning individuals saving in pension schemes, regardless of how their scheme administers pensions tax relief, a new system will be introduced to make top-up payments directly to low-earning individuals saving in pension schemes using a Net Pay Arrangement from 2024-2025 onwards.
These top-ups will start to be paid from 2025 to 2026 in respect of contributions made in 2024 to 2025 onwards and will help to better align outcomes with equivalent individuals saving into pension schemes using relief at source.
The government is also investing in HMRC to modernise the administration of Relief at Source, and deliver a data driven tax administration system for Relief at Source pension schemes, employers, and members.