How employers can help staff benefit from the Government’s pension tax top-up

From this year, employees in net pay arrangement pension schemes may be eligible for a government payment designed to correct a long-standing imbalance in pension tax relief. It’s a simple change that employers can help communicate – and it could make a meaningful difference to lower earners, especially women.

What’s changing?

At the moment, people earning less than £12,570 a year don’t pay income tax. If they’re in a relief at source (RAS) pension scheme, they still receive a 20% top-up from the government on their pension contributions. But those in net pay arrangements don’t get this benefit, effectively missing out through no fault of their own.

Following a consultation in 2022, the government committed to addressing this. From the 2024/25 tax year, HMRC will begin paying eligible individuals a cash top-up – not into their pension pot, but directly into their bank account.

Why employer communication matters

HMRC will contact eligible individuals by post to request bank details. But most people won’t be expecting the letter – and may understandably be cautious. Without clear communication, there’s a real risk that these payments will go unclaimed.

Employers are often a trusted source of information when it comes to workplace pensions. By helping staff understand what to expect – and reassuring them that the payment is legitimate – employers can make a real difference.

This change also presents a broader opportunity. Around 75% of those eligible are women, so raising awareness could help reduce gender-based discrepancies in take-home pay.

Hannah English, Head of DC Corporate Consulting at Hymans Robertson, explains:

“Employers should seize this unique opportunity to give their employees a boost of income without any expense on their balance sheet. It’s an easy step for employers who are facing stagnating growth, and an increase in national insurance contributions, to help their staff.

“Employers are often their staff’s first point of contact for financial advice. This makes them ideally placed to bring this change to the attention of affected employees. Staff could easily disregard a letter from HMRC and miss out on the top-up, which would provide additional income during the current cost-of-living crisis.

“While this small detail may not sound like it has the potential to move the dial on the gender pay gap, it could certainly nudge it in the right direction. If all those eligible for these top-ups claim them – three quarters of whom are women – this could see a positive shift in the gender pay discrepancy.”

A simple action with no cost

At a time when many employers are facing economic pressure, this is one way to support staff without adding to costs. It’s a practical, low-effort step that could provide valuable additional income.

HMRC estimates that if every eligible individual claims, the total cost could reach £84 million a year. But it has only budgeted a fraction of that – £10 million this tax year, and £15 million the next. That’s a strong signal that take-up could be low without additional support.

Next steps

By helping staff understand this change and respond to HMRC’s request, employers can ensure that no one misses out. It’s a simple step and one that shows real commitment to fairness and financial wellbeing.

For more information on how to help your employees claim their pension tax top-up, please get in touch.

Get in touch

This blog is based upon our understanding of events as at the date of publication. It is a general summary of topical matters and should not be regarded as financial advice. It should not be considered a substitute for professional advice on specific circumstances and objectives. Where this blog refers to legal matters please note that Hymans Robertson LLP is not qualified to provide legal opinion and therefore you may wish to obtain independent legal advice to consider any relevant law and/or regulation. Please read our Terms of Use - Hymans Robertson.