What Is Pension Tax Relief? (UK 2025/26)

Pension tax relief is the government's way of encouraging retirement saving. When you contribute to a pension, the government effectively refunds the income tax you paid on that money. The way this works depends on how your pension scheme operates.

Relief at Source

Most personal pensions and many workplace schemes use relief at source. You contribute from your net (after-tax) pay, and the pension provider claims back basic-rate tax (20%) from HMRC and adds it to your pot. So if you pay in £80, your pension receives £100. Higher-rate (40%) and additional-rate (45%) taxpayers can reclaim the extra relief through their self-assessment tax return or by contacting HMRC.

Net Pay Arrangement

Some workplace pension schemes operate on a net pay basis. Your contribution is taken from your gross pay before tax is calculated, so you get full tax relief at your highest marginal rate immediately — no need to claim anything back. The downside historically was that low earners below the personal allowance received no relief at all, though this is being addressed with a top-up payment system.

Salary Sacrifice

Under salary sacrifice, the contribution is made by your employer (not by you), so strictly speaking it is not "pension tax relief" but an employer contribution. However, the effect is similar — and better, because you also save National Insurance.

Limits

You can receive tax relief on personal contributions up to 100% of your annual earnings or the £60,000 annual allowance, whichever is lower. If you earn less than £3,600, you can still contribute up to £3,600 gross (£2,880 net) and receive basic-rate relief.