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Aegon’s Smith on challenges of HMRC’s solution to address the net pay anomaly for non-taxpayers saving in certain pension schemes

Kate Smith, Head of Pensions at Aegon, highlights the challenges of HMRC’s solution to address the net pay anomaly for non-taxpayers saving in certain pension schemes.

  • HMRC’s solution relies on engagement and trust amongst the least engaged sector
  • The offer of free money and financial communications coming out of the blue are typically hallmark signs of scams.

Kate Smith, Head of Pensions at Aegon comments:

“Now that the Government is finally addressing the so-called ‘net pay anomaly’, around 1.2 million employees, 75% of whom are women, will be able to  benefit by an average of £53 a year. It will not only help with the Government’s levelling-up agenda but will also help to close the pensions gender gap. However, low earners will have to wait for over three years for the top-ups to begin and there won’t be any Government payments in respect of pension contributions made in previous years.

“Although we welcome HMRC’s intervention and the £71 million investment in modernising pension tax relief administration, it’s unlikely to be plain sailing as the solution relies on non-taxpayers being engaged, trusting in the process and ultimately claiming the bonus. This could be a lot to ask.

“HMRC will start identifying non-taxpayers saving in net pay arrangement schemes from April 2025, using the PAYE reconciliation process, meaning changes for employers and potentially for pension providers. Top-ups will be paid in arrears, with the first bonus expected to be paid in respect of personal pension contributions made in the 2024-25 tax year. Unlike employers, HMRC doesn’t hold individuals’ bank details so will need to invite identified individuals to make a claim.

“The fly in the ointment is that HMRC will be relying on individuals to be responsive and make a claim, ideally digitally. Low earners tend to be the least engaged with their pensions so this will be challenging. In addition, there is heightened awareness of financial scams. The offer of ‘free money’ and communications out of the blue are hallmark signs of pension scams. Inviting people to go online and share their bank details is another sign. HMRC will need to tread carefully when planning their communication strategy, and may have to run a national campaign to increase awareness and trust to encourage people to make claims.”

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