How did a hole in my work pension worth thousands of pounds get missed? STEVE WEBB replies

I suspected many thousands of pounds were missing from my workplace pension – and I was right. But, for more than a year, my provider did nothing except conduct a failed audit.

My provider hadn’t claimed and added the tax relief which was due for years because the scheme was ‘misclassified’.

Apparently, my provider and my employer were both unaware that the scheme was wrongly classified as salary sacrifice instead of tax ‘relief-at-source’. This was the case since inception, and despite audits, including of payslips, it was never picked up. 

The provider also didn’t notify me that multiple payments had been made late, consistently, including later than the regulatory 90 days on at least six occasions. 

I was not compensated for the resulting loss of investment growth because, it said, these losses were neither ‘material’ nor ‘reportable’.

It took inordinate persistence on my part to instigate a five-plus months’ internal investigation. Only then did all of the above come out. Had I not pushed and pushed back, against denial, nobody would have been any the wiser.

I am no actuary, no pensions expert. Just a policyholder with a hunch who had to fight to prove he was right.

Steve Webb replies: Thank you for getting in touch. I entirely agree that it shouldn’t have been down to you to identify that there was a problem here.

It seems quite possible that the problem would still be continuing if you hadn’t taken action. Your persistence has benefited your colleagues, who were also missing out.

Your experiences are a reminder to anyone in a workplace pension to check that they are also being correctly awarded any tax relief that they are due.

The background to this issue relates to the way in which tax relief is applied to pension contributions.

How pension contributions, tax relief and salary sacrifice work

There are two main approaches, both widely used across workplace pensions.

– Relief at Source (RAS): You pay into a pension out of your take-home pay. HM Revenue & Customs then tops up your payment by crediting basic rate relief directly into your pension pot.

This means that if you, as an employee, pay £80 into a pension, your pension provider will claim an extra £20 from HMRC. If you are a higher rate taxpayer, you can claim extra relief by contacting HMRC or through your tax return.

– Net Pay Arrangement (NPA): In this case, your pension contribution is taken from your gross pay – before tax or National Insurance is worked out.

This means you get full tax relief immediately, because you are taxed only on what is left after your pension contributions has been deducted. There is no need for a top-up from HMRC.

Broadly speaking, the pension provider should know the basis on which your scheme has been set up. If the scheme has gone down the RAS route, your pension provider should be claiming tax relief from HMRC on employee contributions.

But if the scheme is set up on a Net Pay basis, there is no further tax relief to be added.

However, just to make things more complicated, some workplaces run something called ‘salary sacrifice’ for pensions.

Under this arrangement, a deal is done where the worker accepts a lower wage and, in return, the employer makes all of the pension contributions.

The reason for doing this is that there is no National Insurance charged on employer pension contributions, so this deal reduces the overall NI bill.

The November 2025 Budget announced that the level of NI relief on ‘sacrificed’ employee contributions will be capped at £2,000 a year from 2029/30 onwards.

Where salary sacrifice is in operation, there is no employee contribution and therefore nothing to top up with extra tax relief. This is true even if the scheme is set up on a Relief at Source basis.

What went wrong at your pension scheme

What seems to have happened in your case is that your pension provider wrongly believed (presumably based on information from your employer) that salary sacrifice was in operation.

On that basis it did not claim any extra tax relief, and you missed out as a result.

A lot of your anger in the online reviews you have left over this matter is directed at your pension provider. But, as far as I can see, it appears to be your employer which was largely at fault.

Large pension providers may be dealing with tens of thousands of employers and they rely heavily on the accuracy of the information supplied by those employers.

If it is the case that your employer wrongly told the pension scheme that salary sacrifice was in operation, then the pension scheme behaved entirely appropriately in not applying tax relief.

I would agree with you that the provider should be periodically checking information with employers, but the ultimately responsibility lies with employers to provide correct information.

As an aside, although in your case the impact of the error was that your pension pot was too low, in other cases employer errors have led to too much tax relief being awarded.

This has happened where the employer has wrongly told the pension scheme that it is deducting contributions on a RAS basis, when in fact it is deducting them from gross income – the Net Pay approach.

In such cases, schemes have wrongly claimed extra tax relief when none was due, and HMRC has ended up demanding a refund.

My personal view is that this is yet another area where the pension system is unnecessarily complicated.

Ideally, we would find a way in which all basic rate tax relief was delivered through a single mechanism, and then these problems would be less likely to arise.

But until we get to that point, well done to you for persevering and getting this sorted out.

What can pension savers do to ensure payments are correct

Your experiences are an encouragement to anyone else in a workplace pension that operates on the RAS basis to check that tax relief is being added in respect of any employee contributions to the scheme.

The easiest way is to check your annual pension statement for this information. If you have follow-up questions, you can contact the pension scheme provider or administrator.

At your employer, you can also contact the HR department if it has one, or otherwise your office manager or whichever other person is responsible for staff pensions.