How to get free tax top-ups on your pension

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One of the best things about pensions (and we can name a few!) is the tax relief. But what happens if you don’t pay enough tax to qualify for this pension benefit? Well if you save with us, we’ll top up your savings so you don’t miss out.

What’s a tax top-up?

If you’re a member of NOW: Pensions and you’re not paying income tax, you won’t be getting tax relief on money you pay into your pension. But if you make a claim, NOW: Pensions will pay the missing tax relief into your pension plan. We call this a ‘tax top-up’.

For somebody earning just under the tax threshold, that’s about another £60 going into your pension.

NOW: Pensions is the only scheme to pay tax top-ups for people who don’t get pension tax relief.

How does tax relief work?

NOW: Pensions operates a net pay scheme. This means your pension contributions come out of your pay before income tax is taken off.

If you pay tax at the usual rate of 20%, tax relief is automatic. Your employer takes your pension contribution from your wages first. You only pay tax on what’s left.

In other words, you don’t pay tax on the part of your pay that is used for your pension contributions.

How tax relief works on £100 of pension savings

Let’s look at an example:

  • Mo makes a pension contribution of £100.
  • The full £100 is saved into Mo’s pension scheme.

But if:

  • Mo doesn’t make a pension contribution of £100 and instead, Mo takes all the wages as take-home pay, then
  • Mo is left with £80 in take-home pay because Mo’s employer deducts £20 of income tax from the £100 take-home pay.

Thinking about pausing your pension? Read our cost of living crisis explainer.

Pension tax relief doesn’t help everyone

Pension tax relief works if you pay tax. Pension tax relief doesn’t work for low earners or part-time workers who earn less than the tax threshold. The tax threshold for 2022 – 2023 are:

  • £242 per week, or
  • £1,048 per month, or
  • £12,570 per year.

So if you’re getting paid £242 a week or less, you’re probably not paying tax and won’t receive tax relief on pension contributions. If this is you, then our free tax top-up can help you.

Am I eligible for a free tax top-up?

You may be able to claim a free tax top-up if:

  • You have a workplace pension with NOW: Pensions
  • You made pension contributions through your employer’s Scheme with us during the latest tax year
  • You didn’t pay tax on your earnings during the latest tax year because you earned less than the tax threshold

How to claim your tax top-up

You’ll need to fill in an application form to claim our tax top-up. Here’s our tax top-up claim form for the latest tax year, which is the tax year ending 5 April 2022.

Don’t worry if you’re not sure whether you earned enough to pay tax or not last year. If you think your earnings may have been low enough for you not to have to pay tax, then please fill in the form and apply. We’ll then check with HMRC whether you were a taxpayer last year, calculate the tax top-up, pay it into your pension and tell you what we’ve done.

We want fairer pensions for all

In 2015 NOW: Pensions started campaigning for people not getting pension tax relief. We joined others in the pensions industry to form an Action Group to campaign for changes.

The Net Pay Action Group lobbied MPs, ministers, the press and anyone who would listen for over seven years, before a big breakthrough came in the autumn 2021 Budget. The Chancellor responded to our lobbying, announcing that from 2024/25 tax year, the government will make the missing contribution to the pension plans of low earners.

We were delighted, and we’ll keep everyone up to date with any news as it happens.

NOW: Pensions CEO Patrick Luthi said: “This is great news for low earners, who we believe should receive tax relief on their pension contributions, no matter what kind of pension they have.

“Of the 1.2m low earners that HMRC believes will now receive an annual payment, three quarters are women, so this addresses one of the many gender disparities that NOW: Pensions has been exposing as we push for fair pensions for all.”

But as well as campaigning, we’re doing something for those low earners right now and confirm our top-up scheme will continue for the next two tax years until the government top up replaces it.