The government has published draft legislation confirming plans to introduce a top-up system for low earners in net-pay arrangements, with payments expected to be made from 2025.

As part of the policy, HMRC will be required to make top-up payments directly to eligible individuals and to determine eligibility based on whether individuals have contributed to a net pay pension scheme and if their total taxable income is below the personal allowance.

Those who are eligible will be notified by HMRC, with payments, which will be chargeable to income tax, to be made directly to their bank account.

The policy will come into force for the tax year 2024 to 2025, with payments to be made as soon as possible after the tax year in which the contribution is paid.

In line with previous predictions, the government has suggested that the measure will cost the exchequer around £10m in 2025-26, and a further £15m in 2026-27.

In addition to this, it confirmed that HMRC will need to deliver IT changes to support safe delivery of the policy, estimating operational costs in the region of £38m for this.

The Conservative government previously confirmed plans to address the net pay earners loop hole through a top-up system in October 2021, having initially committed to addressing the issue in its 2019 manifesto.

Industry organisations have already backed the plans and intention behind the measure, although concerns have been raised as to the proposed timeline, with Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, noting that there is "no quick fix with those affected having to wait until 2025 to get their payments.”

Adding to this, Aegon head of pensions, Kate Smith, stated: “We’re a step closer to 1.2 million, 75 per cent of which are women, benefiting from the removal of the so-called ‘net pay anomaly’.

"Every penny counts, but individuals will have to wait almost three years before top-up payments can be made into their bank account, and it will only be effectively backdated for a year.

"To maximise the number of claimants and reduce the risk of potential pension scams, HMRC will need to build a really robust and secure online process, while treading carefully with its communication strategy to raise awareness and protect people from online fraud.”

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