Low earners who save through a Net Pay Arrangement (NPA) pension will get the same level of government top-up as those who use Relief at Source schemes
Around 1.2 million low earners will receive top-ups to their take-home pay from 2025 which could be worth hundreds of pounds a year.
For NPAs, pension contributions are deducted before income tax is calculated, whereas with Relief at Source it is after.
The government has published legislation confirming that low earners who save through a Net Pay Arrangement (NPA) pension scheme will get the same level of government top-up as those who use Relief at Source (RAS) schemes.
1.2 million people are eligible for this pay boost – with 200,000 set to see a £100 increase in their take-home pay. The average beneficiary will receive an extra £53 a year.
75% of those to benefit are women, whilst 11% are based in the North-West and Merseyside and 12% are in London.
A quirk in our pensions tax system has meant that over a million low-earners have lost out on government top-ups to their pensions, resulting in comparatively less take home pay.
We are correcting this injustice so low earners will get the same level of government support, no matter what type of pension they use.
People saving through a Net Pay Arrangement (NPA) have had less take home pay compared to similar earning savers who use a Relief at Source scheme. This is because those using the latter type of pension scheme receive a 20% top-up from the government on their savings, whilst those using NPAs receive tax relief at their marginal rate – 0%.
Today the government has published legislation confirming that it has rectified this anomaly, as low earning pension savers will receive similar top-ups regardless of what pension scheme they are using. Beneficiaries will receive their top-ups directly into their bank accounts from 2025 and HMRC will be notifying those who are eligible then. The government has pledged to deliver these changes in full and on time and will ensure the complex nature of these IT changes are ready to deliver this wide-impacting change.
PAYadvice.UK 22/7/2022
