The mechanics
Under relief at source:
- You contribute from your take-home (net) pay
- The pension provider claims 20% basic-rate relief from HMRC and adds it to your pot
- £80 of net contribution becomes £100 in the pension
So a stated "£100 per month" contribution under relief at source means £80 actually leaves your bank account and £100 lands in your pension.
Higher-rate claim
If you're a higher-rate taxpayer (income above £50,270), you should be getting 40% relief, not 20%. The provider only claims 20% automatically — you need to claim the extra 20% yourself via:
- Self Assessment — declare your gross pension contribution; HMRC refunds the extra relief (typically via a tax code adjustment for the following year, or a one-off refund)
- A direct letter to HMRC — if you don't file Self Assessment, you can write to HMRC with your contribution details and request the extra relief
Additional-rate taxpayers (above £125,140) similarly claim an extra 25% via Self Assessment (45% rate − 20% already given = 25% to reclaim).
This is one of the most commonly missed tax reliefs. HMRC estimates billions of pounds of higher-rate relief go unclaimed each year.
How it compares
| Mechanism | Income Tax | NI | Higher-rate relief |
|---|---|---|---|
| Salary sacrifice | Skipped before payroll | Skipped before payroll | Automatic |
| Net pay arrangement | Skipped before Income Tax | Paid on contribution | Automatic |
| Relief at source | 20% automatic; rest via SA | Paid on contribution | Must claim |
For a higher-rate taxpayer on a workplace pension, salary sacrifice or net pay arrangement is more administratively efficient because the full relief is automatic. Relief at source requires the extra Self Assessment step.
Who uses relief at source
Common scenarios:
- Personal pensions (SIPPs) — virtually all SIPPs use relief at source
- Modern workplace pensions — many newer-generation defined contribution schemes (Nest, NOW: Pensions, People's Pension) use this method
- Stakeholder pensions — generally use relief at source
- AVCs (additional voluntary contributions) — usually relief at source
The simplest way to tell which method your workplace pension uses: ask HR, check the scheme documentation, or look at your payslip. If the "Pension" line is below "Income Tax" and "NI" in the deductions, it's likely relief at source. If above both, it's salary sacrifice. If above Income Tax but below NI, it's net pay arrangement.