A small group of pension, payroll and tax specialists have been working with the HMRC a couple of years to get to a point where the money owed to around a million workplace pension savers is paid back to them.

Although everybody accepts that the money is to be paid because a previous Government put in place legislation to make this happen. The money will not be paid retrospectively , even though the failure to pay savings incentives to people auto-enrolled into workplace pensions has not been addressed since 2012 when auto-enrolment began and more acutely 2014 when people started to have money taken from payment even though they were not earning enough to pay tax,

This was a failure of the DWP and the HMRC. Back in 2013, the problem was brought to the attention of those involved in setting up auto enrolment systems. The DWP was able to point to Nest that it had established as a way forward for DC workplace pensions. It is true that Nest had adopted the other system of payroll payment known as Relief at Source but this was for other reasons than avoiding this problem. Most Treasury funded pensions for Government paid employees (and by extension local councils through LGPS) are all still net pay.

The net pay system works very well for those who pay tax and especially for higher rate tax-payers who get tax relief at their highest rate though the “net pay” contribution system. There has been no incentive among companies to organise a fair system. One important exception to this is Tesco who were incentivised by having senior executives (such as Ruston Smith) who were determined to do the right thing for staff (including those staff who earned too little to pay tax but who had been promised an incentive to stay into the workplace pension they had been enrolled in. Tesco required of L&G a second master trust that was set up using relief at source (like Nest) to give low earners a right to the incentive, Higher earners stayed in L&G’s net pay master trust. This dual master trust system has not been copied by any other workplace pension provider.

NOW pensions, set up a compensation system that required savers who

weren’t paying tax to get a rebate. They have not published details of take up but I suspect that it was low. It was a good plan forced through by Adrian Boulding and did highlight the problem to politicians and to civil servants.

An opportunity to get those outside the bubble to think of pensions

There is a lot of money to be paid to people who don’t have a lot of money. We haven’t been given figures by HMRC but expect that typically – it will amount to £70 paid once a year to around one million people.

The NOW experience tells us that unless the payment is advertised effectively, it will not be claimed by many people who have little financial confidence. Martin Lewis is someone they listen to, Steve Webb is his pension man. It is an opportunity for trustworthy politicians to step forward. Paul Lewis can speak to a different audience but he is trusted by his listeners.

But it is also the responsibility of both employers and the providers they employ to accumulate pots or pension rights to buy workplace pensions. Those who pay into and provide net pay schemes should feel responsible for ensuring the claims are made and the rebate paid.

Even though the payment won’t be paid into the workplace pension, it is the responsibility of workplace pension providers operating net pay workplace pensions to help. I suggest that payroll people are best placed to advertise what’s owed and it’s important that payroll operators work with the trustees of net pay occupational pension schemes to help.

An awful lot of low paid earners have small pots, partly because they don’t get much money paid in but also because they can move employers frequently. The dashboard could  be helpful in years to come with small pots , especially if they can be highlighted as potentially triggering a rebate.

Obviously, this is not a high priority for a commercial organisation, whether an employer or a provider. That is why it’s been 14 years since it first got noticed as a potential problem and 12 years since it started becoming “real”. If our commercial employers  and tax-funded employers see their workplace pension as an employee benefit, they cannot ignore the rebate coming to a million employees.

Government low key announcement is in this document

The PPI and Nuffield Report on helping low earners with retirement is here