The three relief mechanisms
UK pension contributions can reach your pot via three different tax-relief mechanisms, and the choice usually isn't yours — your employer's scheme determines which one applies.
Salary sacrifice
Most tax-efficient. Your gross pay is reduced before any tax or NI is calculated, so you skip Income Tax AND National Insurance on the sacrificed amount. £100 sacrificed costs roughly £72 of take-home for a basic-rate taxpayer, £58 for higher-rate.
Net pay arrangement (occupational pensions)
The contribution comes off your gross pay before Income Tax is calculated, but after NI. So you save Income Tax at your marginal rate, but pay NI on the contributed amount. Used by many traditional defined benefit and large defined contribution schemes.
Relief at source (personal pensions, most modern workplace pensions)
The contribution comes out of your take-home pay. Your pension provider claims basic-rate tax relief (20%) from HMRC and adds it to your pot — so £80 of net contribution becomes £100 in the pension. Higher and additional-rate taxpayers claim the extra 20% or 25% via Self Assessment.
How much relief you get
Tax relief equals your marginal Income Tax rate. For 2026/27 in rUK:
| Your situation | Marginal IT rate | Relief on £100 contribution |
|---|---|---|
| Below personal allowance | 0% | None on this slice |
| Basic-rate taxpayer | 20% | £20 of relief; £100 contribution costs £80 |
| Higher-rate taxpayer | 40% | £40 of relief; £100 contribution costs £60 |
| Inside £100k taper | 60% effective | £60 effective relief; £100 contribution costs £40 |
| Additional-rate taxpayer | 45% | £45 of relief; £100 contribution costs £55 |
Salary sacrifice adds NI on top of these figures (8% or 2%), making it modestly more efficient than the net-pay-arrangement or relief-at-source equivalents.
The annual cap
Tax relief is only given on contributions up to your annual allowance — £60,000 for most savers in 2026/27, tapered down for very high earners (see tapered annual allowance). Contributions above the allowance face a tax charge that effectively reverses the relief.
When relief doesn't apply
A few scenarios where pension contributions don't attract tax relief:
- Contributions in excess of your annual allowance
- Contributions above 100% of your relevant earnings
- Contributions to non-UK-registered pension schemes (some exceptions apply for overseas pensions)
- Member contributions to a scheme you've already started drawing from (after the money purchase annual allowance is triggered)
For specific situations near these boundaries, the GOV.UK pension tax relief pages cover the precise rules — and a regulated financial adviser is the right resource if your situation is complex.