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  • Shader Saidi

Pension top-up rate for low earners

In the Budget, the government confirmed that it will introduce a system to make top-up payments for contributions made in 2024-25 onwards directly to low-earning individuals saving in a pension scheme using a net pay arrangement

These top-ups will help to better align outcomes with equivalent savers saving into pension schemes using Relief at Source.

An estimated 1.2 million individuals could benefit by an average of £53 a year.

A response to the Call for Evidence on pensions tax relief administration providing further details is also being published at the Budget and Spending Review.

Henry Tapper, chair of Pension Playpen, said: ‘HMRC appears to have made a positive move to correct the net pay anomaly and ensure that the cost of future savings for those in net pay schemes are the same as those in relief at source schemes.

‘Currently those earning but not paying income tax – who are in net pay pension schemes (like Smart and NOW Pensions) - have to pay 25% more for the same contribution as those in relief at source scheme like Peoples Pension and Nest.

‘Those in net pay pension schemes who don't pay tax won’t get tax relief, but the incentive that the Government promised them as part of the auto-enrolment promise will be paid as cashback the following tax-year.

‘Despite having a right to an average of £53 cashback, the government believe that only one in six will claim their cash. We hope that the pension and payroll industry will substantially improve on a 17% take-up.

‘There are wrinkles, but this is still a big step forward for low-paid savers.’


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