The three contribution methods
UK pension contributions reach your pot via one of three routes — and the route matters for how tax relief works:
- Salary sacrifice — gross salary reduced before any Income Tax or NI is calculated; the sacrificed amount goes directly to the pension. Most efficient.
- Net pay arrangement (occupational pensions) — contribution comes off gross before Income Tax (but after NI). You get full tax relief automatically at your marginal rate.
- Relief at source (personal pensions and most modern workplace schemes) — contribution comes off your take-home pay; the pension provider claims basic-rate relief from HMRC and adds it to your pot. Higher and additional-rate taxpayers claim the extra relief via Self Assessment.
The annual allowance
For 2026/27 you can contribute up to £60,000 (or 100% of your relevant earnings, whichever is lower) into pensions and get tax relief on every pound. This is the annual allowance — it counts contributions from you, your employer, and any salary sacrifice combined.
For high earners with adjusted income above £260,000, the allowance tapers down by £1 for every £2 above the threshold, to a minimum of £10,000 at adjusted income of £360,000. This is the tapered annual allowance.
Carry-forward
If you haven't used the full annual allowance in the previous three tax years, you can carry forward the unused allowance. Useful for one-off large contributions — for example, after receiving a bonus or inheritance.
Auto-enrolment
UK employers must automatically enrol eligible employees into a workplace pension. From age 22, earning at least £10,000 a year, you're auto-enrolled at the statutory minimum: 5% from you and 3% from your employer of qualifying earnings. Many employers match higher contributions — always check.
Tax-free withdrawal
From age 55 (rising to 57 in 2028), you can take 25% of your pension pot tax-free. The remaining 75% is taxed as income when withdrawn. For most savers, this makes pension contributions one of the most tax-efficient long-term saving structures in the UK system.