HMRC to contact 1 million low earners over missed pension tax relief

Letters are being sent from August 2026, with the programme expected to continue into early 2027. If you receive one, you could be entitled to a payment to top up your pension savings.

Around three-quarters of those affected are thought to be women, consultancy firm LCP have revealed.

Why have some people missed out on tax relief?

When you pay into a pension, the government normally provides tax relief to encourage you to save for retirement. However, there are different ways of applying this tax relief.

Some workplace pension schemes use a system where pension contributions are taken from your pay before income tax is calculated. This works well for people who pay income tax, but can disadvantage lower earners who don't pay tax.

Other schemes add basic-rate tax relief directly to pension contributions, regardless of whether the individual pays income tax.

Under automatic enrolment, people earning less than the income tax threshold can still be enrolled into a workplace pension. If their employer's scheme uses the first method of applying tax relief, they may have missed out on the relief they would have received under the other system.

The government has now introduced a way for affected employees to claim the missed tax relief for pension contributions made from the 2024/25 tax year onwards.

How much could people receive?

The amount will depend on how much an individual paid into their pension. A 2021 government consultation estimated that the average payment could be around £53.

While that may not be a huge sum, it represents pension tax relief that eligible savers should have received. HMRC says payments are expected to start being made in the next few months, as claims are received.

The letters will be sent gradually, with the programme continuing into early 2027.

What should you do if you receive a letter?

If HMRC contacts you, the letter will explain how to claim any payment you're entitled to. It's important to be aware of scams, particularly as some people may be surprised to receive a letter offering them money. If you're unsure whether a communication is genuine, check through official HMRC channels rather than clicking links or sharing personal information.

Once people have registered for the payment, HMRC plans to introduce a more automated process for future years in which they were affected by the same issue.

Why is HMRC making these payments?

The issue has highlighted how the way a workplace pension scheme operates can affect the amount of tax relief some lower earners receive.

Steve Webb, partner at LCP, said: “It is clearly unfair that around 1 million low earners have missed out on pension tax relief, simply because of the way in which their workplace pension is administered.”

He also warned that many people may not understand why they are receiving a letter from HMRC or could mistake it for a scam, making clear communication particularly important.