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HM Treasury has announced plans to give 1.2 million earners paying into pension schemes via a Net Pay Arrangements a top-up to their take-home pay.
The Treasury plans to close a loop-hole in the pensions system that means those earning below their personal tax allowance who have pension contributions taken from their pay before tax deductions have a lower take-home pay than someone on the same income whose deductions are taken after tax and pay a smaller pension contribution from their wages which is topped up by 20% tax relief.
200,000 set to see a £100 increase in their take-home pay by closing this imbalance. The average beneficiary will receive an extra £53 a year.
Financial Secretary to the Treasury Lucy Frazer said:
“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.”
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.