How Tax Relief Works
When you pay into a pension, some of the money that would have gone to the government as tax goes into your pension instead.
Basic Rate Taxpayers (20%)
For every £80 you pay in, the government adds £20. This gives you a total contribution of £100.
Higher Rate Taxpayers (40%)
You get the same 20% relief automatically, but you can claim back another 20% through your tax return.
Additional Rate Taxpayers (45%)
You can claim back an extra 25% on top of the automatic 20% relief.
Types of Pension Schemes
Relief at Source
Your employer deducts tax from your salary first, then takes your pension contribution from your net pay. The pension provider then claims the 20% tax relief from HMRC and adds it to your pot.
Common for: SIPPs and some workplace pensions.
Net Pay Arrangement
Your pension contribution is taken from your salary before tax is calculated. This means you get full tax relief immediately (up to 45%) without needing to claim anything back.
Common for: Many workplace and public sector pensions.
Salary Sacrifice
This is the most tax-efficient method. You agree to reduce your salary, and your employer pays that amount into your pension. You save on both Income Tax and National Insurance.
Common Questions
How much can I pay into my pension tax-free?
For the 2025/26 tax year, the annual allowance is £60,000, or 100% of your earnings, whichever is lower. You may also be able to carry forward unused allowance from the previous three tax years.
How do I claim higher rate pension tax relief?
If you are in a 'Relief at Source' scheme, your provider only claims basic rate (20%) relief. You must claim the remaining 20% (if a higher rate taxpayer) or 25% (if an additional rate taxpayer) via your Self Assessment tax return or by contacting HMRC to adjust your tax code. If you use 'Salary Sacrifice' or 'Net Pay', you get full relief automatically.
Does my employer pension contribution count towards my annual allowance?
Yes. Both your own contributions and your employer's contributions count towards the £60,000 annual pension allowance.
Calculate Your True Take-Home Pay
Pension contributions can significantly lower your tax bill. Our calculator handles Salary Sacrifice, Relief at Source, and Net Pay arrangements correctly.
Calculate your take-home pay with pension contributions →