In short
In 2026/27 pension contributions get income tax relief at your marginal rate — 20%, 40% or 45%, and effectively 60% between £100,000 and £125,140 — up to your earnings and the £60,000 annual allowance (tapered to £10,000 above £260,000 of adjusted income). Relief-at-source schemes add only 20% automatically, so higher-rate taxpayers must claim the rest through Self Assessment; salary sacrifice also saves 8% or 2% employee NI and 15% employer NI, so £5,000 into a pension costs a £45,000 earner £3,600 and £10,000 costs a £110,000 earner £3,800.
Every pound you put into a pension in 2026/27 is cheaper than it looks, but how much cheaper depends on three things: your marginal tax rate, the method your scheme uses to give relief, and whether you have to claim part of it yourself. This guide explains relief at source, net pay and salary sacrifice, the higher-rate relief that goes unclaimed every year, the £60,000 annual allowance and its taper, and why contributions are worth 60% between £100,000 and £125,140. By the end you will be able to work out what a contribution really costs you from take-home pay and whether you are owed a refund from HMRC. Figures are for England, Wales and Northern Ireland.
Open the pension tax relief calculator →
Relief at your marginal rate
Pension contributions come out of income before income tax, so the relief equals the tax you would otherwise have paid on that slice of income. In 2026/27 that means 20% if the contribution comes out of the basic-rate band (gross income £12,570 to £50,270), 40% in the higher-rate band (to £125,140) and 45% above. A contribution that straddles two bands gets a blended rate, which is why the calculators compute tax before and after the contribution rather than applying one percentage.
| Gross income (full allowance) | Marginal income tax | Employee NI | Salary sacrifice saves |
|---|---|---|---|
| £12,570 – £50,270 | 20% | 8% | 28% |
| £50,271 – £100,000 | 40% | 2% | 42% |
| £100,001 – £125,140 | 60% effective | 2% | 62% |
| Over £125,140 | 45% | 2% | 47% |
Relief is capped at your relevant UK earnings for the year (or £3,600 gross if lower) and at the annual allowance below. Employer contributions are not limited by your earnings, only by the allowance.
Three ways the relief reaches you
Relief at source
Used by SIPPs, personal pensions and many workplace schemes. You pay 80% of the gross contribution from taxed pay and the provider claims the other 20% from HMRC, so £80 from you becomes £100 in the pot. That is the whole story for a basic-rate taxpayer. A higher or additional-rate taxpayer is owed another 20% or 25% of the gross contribution, and it is not automatic: you claim it through Self Assessment, or by asking HMRC to adjust your tax code. The claim can go back four tax years. A non-taxpayer can still pay £2,880 and receive £720 of relief.
Net pay
Used by many occupational schemes. The contribution is deducted from gross pay before PAYE calculates tax, so full relief at your marginal rate arrives in the payslip with nothing to claim. National Insurance, however, is still charged on the full salary.
Salary sacrifice
You agree to a lower contractual salary and the employer pays the difference into your pension as an employer contribution. Because the sacrificed amount was never salary, it escapes income tax and employee NI at 8% (2% above £50,270), and the employer saves 15% employer NI on it (the employer NI calculator shows how much). Some employers pass part or all of that 15% into the pension; ask. The post-sacrifice salary must stay at or above the National Minimum Wage, and it needs to stay above the £6,500 lower earnings limit for the year to count towards your State Pension.
The 60% zone above £100,000
Above £100,000 of adjusted net income the personal allowance is withdrawn at £1 for every £2, disappearing at £125,140. Each £1 earned in that band is taxed at 40% and also removes 50p of allowance that is then taxed at 40%, so the effective rate is 60%. A pension contribution reverses the process: it reduces adjusted net income, restores allowance and gets 60% relief. Earning £110,000, a £10,000 contribution brings income back to £100,000, restores the full £12,570 allowance and saves £6,000 of income tax. The same logic applies to the High Income Child Benefit Charge between £60,000 and £80,000 and the £100,000 Tax-Free Childcare cliff, both of which test adjusted net income after pension contributions. The take-home pay calculator shows the taper in your payslip, and the take-home pay guide explains the bands.
Annual allowance, taper and carry forward
The annual allowance is £60,000 of total contributions in a tax year, counting your own gross contributions and your employer’s. Above it, an annual allowance charge claws back the relief at your marginal rate. You can add unused allowance from the three previous tax years provided you were a scheme member then, and you still need the earnings to support your own contributions.
The taper applies when threshold income (broadly, income less your own pension contributions) exceeds £200,000 and adjusted income (income plus all pension contributions, including the employer’s) exceeds £260,000. The allowance then falls by £1 for every £2 of adjusted income over £260,000 to a floor of £10,000. Once you have flexibly accessed a pension, the money purchase annual allowance of £10,000 replaces the £60,000 for contributions to defined contribution schemes.
Worked examples: £45,000 and £110,000
£45,000 salary, £5,000 gross contribution. Income tax on £45,000 is 20% × (£45,000 − £12,570) = £6,486; on £40,000 it is £5,486, so the relief is £1,000 (20%). Relief at source: you pay £4,000 and the provider adds £1,000; there is nothing to claim. Net pay: the same £4,000 cost through payroll. Salary sacrifice: tax relief £1,000 plus NI saved 8% × £5,000 = £400, so the £5,000 costs £3,600 of take-home (28% relief); take-home falls from £35,920 to £32,320. The employer saves 15% × £5,000 = £750 of employer NI.
£110,000 salary, £10,000 gross contribution. At £110,000 the allowance is £12,570 − (£10,000 ÷ 2) = £7,570 and income tax is £33,432. At £100,000 the full allowance returns and tax is £27,432, so the relief is £6,000 (60%): £4,000 at the 40% rate plus £2,000 from the £5,000 of allowance restored. Relief at source: you pay £8,000, the provider adds £2,000, and you must claim the remaining £4,000 through Self Assessment; the net cost is £4,000. Net pay: £4,000 from payroll. Salary sacrifice: the NI saved is only 2% × £10,000 = £200 (this income is above £50,270), so the cost is £3,800 and take-home moves from £72,357 to £68,557; the employer saves £1,500.
Run your own figures in the salary sacrifice pension calculator, which compares all three methods side by side.
What people get wrong
- Not claiming higher-rate relief. In a relief-at-source scheme the provider only ever adds 20%. If you pay 40% or 45% tax and have never filed a return or asked for a code change, the extra relief is sitting with HMRC. Claims can go back four years.
- Quoting the contribution net. The allowance and the relief are measured on the gross contribution. £8,000 paid into a SIPP is a £10,000 contribution.
- Forgetting employer contributions in the £60,000. Employer money counts towards the allowance even though it never touched your payslip.
- Ignoring the taper test order. If threshold income is £200,000 or below, no taper applies however high adjusted income is.
- Sacrificing without checking the knock-on effects. Statutory maternity pay and some mortgage lenders use the post-sacrifice salary, although most lenders accept a reference-salary letter.
Frequently asked questions
Is salary sacrifice always better than relief at source?
For the tax, it is at least as good and gives higher-rate relief automatically; the extra is the NI saving of 8% or 2%, plus any employer NI shared. The constraints are the minimum wage floor and that it is an employer arrangement, so the self-employed cannot use it.
How do I claim higher-rate relief on a SIPP?
Enter the gross contribution on the pension pages of your Self Assessment return, or write to HMRC asking for your tax code to be adjusted. The basic-rate band is extended by the gross contribution, which is how the extra 20% or 25% is given.
What is the annual allowance for 2026/27?
£60,000 including employer contributions, tapered down to £10,000 for adjusted incomes over £260,000 when threshold income exceeds £200,000, and £10,000 once you have flexibly drawn a pension.
Can I contribute more than I earn?
Your own contributions get relief only up to your relevant UK earnings (or £3,600 gross if lower). Employer contributions are not limited by your earnings.
Does a pension contribution reduce the child benefit charge?
Yes. The charge is based on adjusted net income, which is reduced by gross pension contributions. Bringing income below £60,000 removes it entirely.
Sources
- HMRC — Tax on your private pension contributions: tax relief (checked 8 October 2026)
- gov.uk — Annual allowance, taper and money purchase annual allowance (checked 9 October 2026)
- HMRC — Income Tax rates and Personal Allowances 2026/27 (checked 29 September 2026)
- HMRC — National Insurance rates 2026/27 (checked 29 September 2026)