Autumn Budget 2021 - Response published - Pensions tax relief administration: call for evidence

27 October 2021

The call for evidence was initially announced in March 2020, within the 2020 Budget, and its aim was to address the issue of how a low-earning individual’s net pay could potentially be affected solely based on how pensions tax relief is provided through their pension scheme. 

In Relief At Source (RAS) arrangements, pension contributions are taken from net pay, and the pension provider reclaims tax relief from HMRC, ensuring that individuals enrolled in pension schemes of that type receive pensions tax relief. In a Net Pay Arrangement (NPA), however, pension contributions are deducted from gross pay. The current tax threshold is £12,750, whilst the auto-enrolment threshold is for earnings above £10,000, so anyone earning between those two amounts will not receive the pensions tax relief that they would have if they had been in a relief at source pension scheme. 

HM Treasury gave four approaches on how this anomaly could be resolved which were: 

  • Approach one – the payment of a bonus 

  • Approach two – applying a standalone charge to RAS schemes  

  • Approach three – the operation of multiple schemes 

  • Approach four - mandating the use of RAS for Defined Contribution (DC) schemes  


Today (27 October), HM Treasury has published its reponse to the consultation. 

It has stated that the clear preference from the majority of responses was to use Real Time Information (RTI) data to pay a bonus to low earners whose employers use the net pay method of tax relief. The government also agreed with most respondents who considered that the anomaly should be resolved and intends to proceed with a variant of the bonus proposal (approach one).  

The response document advises that the process for claiming and paying the top-ups on contributions to NPA schemes in 2024-25 will involve information being gathered from RTI to identify those low earners that have paid into a pension scheme via a NPA who did not gain any tax relief. Once identified, HMRC will calculate the amount of top-up they are entitled to, based on the contributions made into a pension scheme in the tax year 2024-25. HMRC will then notify individuals that they are eligible for a top-up and they will be invited to provide the necessary details to HMRC so that they are able to make the payment to them. 

This process will begin after the tax year 2024-25 has ended and first calculations and payments will be made in 2025-26. The process will then continue year upon year, following the end of tax year so that all data can be considered when calculating the top-up.  

As we are more than aware, full details of the calculation will be within legislative documents, however, it can be presumed on the basis of working a tax year in arrears that the calculations will be based on an individual themselves and not individual employments. 

You can access the full consultation reponse here

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