Low Earner's Pension Payment: HMRC to begin contacting eligible people this autumn

What is the Low Earner's Pension Payment?

The Low Earner's Pension Payment (also referred to as the ‘LEPP’) is intended to compensate people who have missed out on some pension tax relief because of the type of workplace pension scheme they contribute to. 

The payment applies to certain employees with low earnings who made pension contributions from the 2024/25 tax year onwards. It is designed to put affected low earners in the same position as people whose pension contributions receive tax relief through a different type of scheme, known as a relief at source scheme.

Why is the payment being made?

The amount of tax relief someone receives on their pension contribution can depend how their workplace pension scheme gives tax relief. There are two main types of scheme:

• In a relief at source scheme, the pension provider claims basic rate tax relief from the government and adds it to the member's pension savings, even if the member pays little or no income tax.
• In a net pay arrangement scheme, pension contributions are deducted from pay before income tax is calculated. 

For most people, contributing to a net pay pension scheme will lead to the same outcome as relief at source. However, some people with lower income may receive less tax relief – or none at all. This is the problem that the Low Earner’s Pension Payment is designed to fix. You can read more about this in our guidance page Pension tax relief: problems for low earners.

Who will receive the Low Earner’s Pension Payment?

Eligibility for the payment depends on your circumstances in each tax year. Broadly, the payment is aimed at people who:

• contribute to a workplace pension operating under a net pay arrangement; and
• had total income below, or only slightly above, the tax-free personal allowance, meaning they did not receive the full benefit of pension tax relief. 

The payment will be made to eligible people in relation to tax years starting from 2024/25 – it is not available for earlier years. It is also not available to anyone whose pension scheme already gives tax relief through a relief at source arrangement. 

How will the payment work? 

HMRC say they will identify eligible people using information they hold.  If you are entitled to a payment HMRC will contact you either by post or through your Personal Tax Account, if you have opted to receive digital communications. If you are eligible, HMRC say you will not need to apply for the payment or contact HMRC in advance, but you will need to follow HMRC’s instructions to receive the payment.

The amount payable will depend on your total income and pension contributions for the relevant tax year. The payment will be the equivalent of 20% of your pension contributions on which no tax relief was received. Where some tax relief has already been given, a smaller payment may be due. If you are eligible, HMRC will calculate the amount payable and tell you how much you are entitled to receive, and how to receive it.

HMRC have confirmed that the payment is not taxable and will not affect entitlement to benefits such as Universal Credit.

How will I receive my payment? 

HMRC will calculate your payment automatically, but you will need to take action to accept and receive the payment. 

If HMRC contacts you to tell you that you are entitled to a payment you should follow HMRC’s instructions to ‘accept’ the payment and provide the necessary information, including bank account details. The payment will be made directly to you rather than being paid into your pension savings pot.

Eligibility is assessed separately for each tax year. We understand that if you qualify for a payment in more than one tax year you will receive separate communications from HMRC in respect of each year – and you will need to accept the payment each time. Bank details will not be stored for later years’ payments.

HMRC have said that people who do not respond to the initial invitation will receive a reminder. You will have up to four years to accept your payment.

When will I hear from HMRC? 

We understand that HMRC are initially testing the process with a limited number of eligible individuals before the service is rolled out more widely. Anyone taking part in the testing phase will be offered support and guidance.

HMRC’s full guidance on the Low Earner's Pension Payment is not yet available. HMRC have indicated that it will be published on GOV.UK ahead of the wider rollout, subject to the successful completion of the testing and assurance phase. LITRG will provide further information as more details become available.

Be aware of scams

Some people may be surprised to receive an unexpected communication from HMRC offering a payment. This could provide an opportunity for scammers to impersonate HMRC.

If you receive a communication claiming to be from HMRC you should take care before providing personal or financial information. HMRC provide guidance on GOV.UK explaining how to check whether a letter or other communication is genuine.

HMRC will never contact you about a Low Earner’s Pension Payment by text message, email, or telephone. Payments will only be notified by letter – either through the post, or within your Personal Tax Account if you have opted to received communications digitally.

HMRC have confirmed that they will never ask anyone to transfer money or provide their PIN or password in order to receive a Low Earner’s Pension Payment.