That’s what experts call it – the rest of us call it a 12 year rip-off

In his first Budget this week, Chancellor John Healey announced £100 in  cash will go to households in Council Tax bands A to D in England, to help with their energy costs.

But awaiting 1m workers who’ve been overpaying into their pension will get a payment of up to £80 a year backdated to 2024 , announced in November and paid early next year. This will also be paid in cash and go to anyone who has paid into a workplace pension without the promised incentives.

I’m saying this because the payment will go on being paid to savers who earn less than the first tax band.People in the green band who are auto-enrolled into a “net pay” style of pension will get the windfall payment until they get to earn above £12,570. After that they will get a tax adjustment and if their pension contribution takes their income below £12,571 they will not get tax relief on some of the contribution and will get the money instead as cash from HMRC at the end of the tax year.

For some reason , HMRC are being shy of promoting this. I don’t know why the Pensions Minister isn’t explaining this and I don’t know why it wasn’t mentioned by John Healy in the budget.

But I have a promise that the Low Earners Pension Payment is only days from being announced.

The unpromoted pension windfall for low earners (LEPP) is just around the corner. This is how we hope it will be announced by HMRC

This cash payment will be known as Low Earners Pension Payment (LEPP) and compensates those who don’t get relief at source. How little low payers understand tax and incentives  is obvious when you recognise that those in net pay pension schemes (all DB and quite a lot of DC workplace pensions) have been ripped off of their savings incentives since 2014.

The budget made no mention of this but I have it in writing from HMRC that in the next couple of months around a million low earners will get a simple form which will entitle them to a payment of up to £160 of back dated incentive (instead of tax relief). This will be similar to people in the poorer housing getting £100 early next year to meet rising energy costs. The difference is that while the £160 represents this year and the previous year’s incentive, it will come year after year at up to £80 a year.

The campaign to get this money paid to those who were promised it as an incentive was approved in Boris Johnson’s manifesto after pressure from a group led by Ros Altmann calling itself the low paid action group. The work on numbers was done by the Low Income Taskforce Group (LITR) and a few outraged pension people (including me) have been involved in this campaign for the best part of a decade. To go back to its detection as a problem we need Kate Upton to step forward who discovered it when payroll director at Marks and Spencer in 2014. It’s only then that the minimum earnings that could be pensioned (under auto enrolment rules) , was below the minimum tax threshold.

The trigger point where people’s earnings auto-enrol them into a workplace pension is now £10,000. Around 1m people have been earning between £10,000 and £12,750 and paying into a net pay pension.  They’ll be getting a rebate in the new year and continuing incomes after that, so long as they pay into a net pay scheme and get no tax relief.

Not a scam though many may think it is.

We wanted the money to be paid into people’s pension but this has instead been turned into an “energy bung” style payment which people will have to agree to being paid. I can understand that some people will be nervous of any correspondence with the inland revenue  (thinking it either bad news or worse – a scam).

The HMRC realise we all get scam letters and many of us find their scams of HMRC tax demands. They have gone as far as preparing communications to low earners that this is not a scam

For some reason the pension industry has been very quiet about this but it is important. It makes it easier for people on low incomes to stay in pension plans they’ve been auto-enrolled into.

I regret that no mention has been made of LEPP in this budget or any other and I hope that it will arrive with the kind of applause it needs. My regret is that the backdating is not to 2024 but to 2014 when the problem started. Watch out for this to burst in the next few weeks. It is a very important bung because it is paid each year so long people pay into a certain time of pension.

A technical note for pension boffins.

Please note that Nest, People’s Pension and some other smaller master trusts pay Pension Relief at Source and their savers get their incentives paid them even if they don’t pay tax. The bulk of the problem is in occupational pensions set up under net pay and this includes a lot of DC and all DB pensions.

The Government has produced various documents on this which can be found from this link.