Why pension contributions get tax relief
Who this guide is for: For employees comparing workplace pension methods on a payslip or in the Income Tax Calculator.
The UK government encourages pension saving by giving tax relief on contributions within limits. How relief appears on your payslip depends on whether your scheme uses relief at source, a net pay arrangement, or salary sacrifice.
Compare net pay and relief at source
Salary sacrifice changes contractual pay and usually National Insurance as well as Income Tax — the full caveats live in Salary Sacrifice Explained. This table focuses on the two methods that mainly differ in how Income Tax relief is delivered.
| Aspect | Net pay | Relief at source |
|---|---|---|
| Where the contribution is taken | Deducted from gross before Income Tax | From net pay |
| Taxable pay falls? | Yes | No |
| Employee NI falls? | No | No |
| Provider adds basic-rate relief? | Not applicable (pre-tax) | Yes (20%) |
| Further relief may need claiming? | No — marginal rate via payroll | Yes for higher/additional-rate taxpayers |
Why the percentage on your payslip may not match the amount leaving your bank
- Qualifying earnings — auto-enrolment bands often run from £6,240.00 to £50,270.00 in 2026/27, not full salary.
- Full gross salary basis — some schemes apply percentages to total pay instead.
- Relief at source — you may pay 80% of the gross contribution from your bank while the provider adds basic-rate relief.
- Employer contributions — appear in the pension, not as a deduction from your net pay.
Worked example
£45,000 with £2,400.00 employee contribution
Tax year 2026/27 · England · tax code 1257L · no student loan · NI category A · amount contribution mode. Engine figures.
| Take-home — salary sacrifice | £34,192.08 |
|---|---|
| Take-home — net pay | £34,000.08 |
| Take-home — relief at source | £34,000.08 |
| Employee NI — salary sacrifice | £2,401.92 |
| Employee NI — net pay | £2,593.92 |
| Employee NI — relief at source (key figure) | £2,593.92 |
| RAS net paid by employee | £1,920.00 |
| RAS basic-rate relief from provider | £480.00 |
Compare pension methods in the Income Tax Calculator Use the Income Tax Calculator