This headline from Corporate Adviser is enough right to make people sit up and wonder whether the HMRC has gone crazy and that’s because we get incentives to defer pensions mixed up with tax relief.

When repayments of over payments into pensions by the lowest paid next year, there will be groups of commentators claiming this is an outrageous use of HMRC money. This blog explains why it isn’t and infact is a scandal that impacts one million pension payers who pay more as a percentage of their band earnings than anyone else.

This blog has been complaining that those who were promised to put money away for retirement have been promised an incentive to do so and most people have. The people who have been tax payers when they contribute get the incentive either through payroll or through a complicated system that pays money to save as an amount paid to people for saving (it’s so like tax relief that it’s called that but if you are in a contract based workplace pension or in Nest or People’s or one of the L&G mastertrusts , you’ll get the incentive whether you pay tax or not. The system is known as PRAS (pension relief at source)

All this meant very little till around 2014 when people who weren’t earning enough to pay tax found themselves paying auto-enrolment and if they were in the other type of scheme (known as Net Pay) , they got their incentive unless you didn’t pay income tax. It was complex and it took campaigner Kate Upcraft who ran Marks & Spencer’s payroll to explain, but what was happening was that a group of low-paid people were paying contributions and not getting the incentives they’d been promised.

So it’s not quite “tax relief for the untaxed” but “disincentivised by a system promising incentives“. It means that the £10 is missing for this formula.

This explanation is from the Government in 2012 and became wrong when people found themselves paying in £50 and their bosses £30 and the Government nothing at all. The explanation was wrong, it was not tax relief but an incentive that was due and it was due whether you paid tax or not.

It wasn’t till 2019 that something was done about. First it was Boris Johnson’s manifesto and then it was in a Bill and finally it became a promise in legislation but it has taken 12 years since the problem emerged and 7 years since that manifesto promise for us to get to the verge of an announcement that will look something like this.

What we hope will be coming any day now is this.

The Low Earner’s Pension Payment (LEPP) is the incentive that some people have been missing out on for 12 years. It will be backdated but only to 2024 and the HMRC will be cross with me for publishing something that is due to be a big splash. Here’s the kind of information that 1m savers will get.

If you want to see some more numbers of what the LEPP will be (remember a missed  incentive not tax relief) then you can read this article published yesterday in Corporate Adviser. It’s good of Moira O’Neill to write on this, only this blog appears to have been interested and that’s because I’m on the working group with HMRC looking to get this over the line. As I’ve written before, no money will be sent to the disincentivised till next year (another broken promise as the promise was for payments to start in 2026).

Torsten Bell says that people don’t trust pensions. It’s things like this, affecting over 1m people that make people not trust pensions. It’s not just private pensions, this underpayment of incentives is as much to do with public pensions as private and if we wonder why low paid  people find pensions expensive, it is partly because the lowest paid are paying 5% of pay through auto-enrolment when tax-payers pay a minimum of 4% (see above).

I hope that this will be brought up by the Pensions Commission in February’s report. It is a scandal that is unreported because too few care about low earners.