If salary sacrifice, employer also saves 15% NI on the sacrificed amount. Some employers pass this saving back (often 100% — ask HR).
For every £1 of take-home
£1.72 goes into your pension
42.00% effective relief
Goes into pension
£5,000
Costs your take-home
£2,900
Effective relief rate
42.00%
Same contribution under all three methods
Compare salary sacrifice's NI advantage at a glance.
Method
Goes into pension
Take-home cost
Effective relief
Salary sacrifice ←
£5,000
£2,900
42.00%
Relief at source
£6,250
£3,750
40.00%
Net pay arrangement
£5,000
£3,000
40.00%
Band-by-band breakdown
Which marginal rate band each portion of your contribution sits in.
Band
Contribution in band
Total relief rate
Relief
Higher rate (40%)
£5,000
42%
£2,000
Other savings (NI, employer passback, student loan)
—
—
£100
How does pension tax relief work in the UK?
UK pension contributions are tax-relieved at your highest marginal income tax rate. Three mechanisms deliver that relief. Salary sacrifice reduces your gross salary before income tax and National Insurance are calculated — you save both, making it the most efficient option. Relief at source (RAS) is used by most personal pensions and SIPPs: you pay net, the scheme claims 20% basic-rate relief from HMRC and adds it to your fund, and you reclaim any higher- or additional-rate relief via Self Assessment. Net pay arrangements reduce your gross salary before income tax (like sacrifice) but do not save NI. Relief stacks against the highest part of your income first, so a higher-rate taxpayer's first contribution always gets 40% relief — useful when planning bonus sacrifice. To see how this interacts with contractor structures, see our IR35 calculator.
The £100k pension boost — 60% effective relief
The most tax-efficient pension contributions in the UK are made by people earning between £100,000 and £125,140. In this band the personal allowance is tapered: each £1 contributed avoids 40% income tax AND restores 50p of personal allowance which itself saves 20p of tax — a 60% effective relief rate. Via salary sacrifice, the 2% employee NI saving lifts that to 62%, and an employer passback of their 15% NI can take it to 77%. See our 60% tax trap calculator to model exactly how much pension contribution gets you out of the trap.
Annual allowance and carry-forward
The annual allowance for 2026/27 is £60,000 of gross contributions — including your own, employer, and any third-party payments. If you've used less than the full allowance in any of the previous three tax years, you can carry that unused amount forward, provided you were a member of a UK-registered pension scheme in those years. A tapered annual allowance applies if your adjusted income exceeds £260,000 — reducing by £1 for every £2 above that, down to a £10,000 floor. The Money Purchase Annual Allowance (£10,000) restricts further DC contributions if you've already drawn taxable income from a defined contribution pension. Once you know how much to contribute, see how it grows over time with our Pension Pot Projection Calculator. For investment-related tax planning alongside pension contributions, see our capital gains tax calculator. Pensions also sit outside the IHT estate for most savers, making contributions an estate-planning tool as well as a tax-efficient saving vehicle — see our Inheritance Tax Calculator.
Frequently asked questions
What is the maximum pension tax relief in 2026/27?
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Pension tax relief is given at your highest marginal rate. For most earners that's 20% (basic rate), 40% (higher rate) or 45% (additional rate). Earners caught in the £100,000–£125,140 personal allowance taper get 60% effective relief on contributions in that band, because each £1 contributed not only avoids 40% income tax but also restores 50p of personal allowance taxed at 40%. Salary sacrifice adds a further 2% NI saving in this band, taking the total to 62%. The annual allowance for 2026/27 is £60,000 of gross contributions (including employer payments).
Is salary sacrifice better than relief at source for pension contributions?
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Almost always yes. Salary sacrifice reduces your gross salary before income tax and National Insurance are calculated, so you save both. Relief at source only saves income tax — you pay the NI on the contribution. For a higher-rate taxpayer, salary sacrifice gives 42% relief (40% IT + 2% NI) versus 40% via relief at source. If your employer also passes back their 15% employer NI saving (some do — ask HR), the salary sacrifice advantage can grow to 57% or more. Salary sacrifice does reduce your gross salary on paper, which can affect mortgage applications and statutory maternity pay.
How do I claim higher-rate pension tax relief?
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Higher-rate and additional-rate taxpayers must claim the extra pension tax relief themselves — via Self Assessment or by writing to HMRC — because relief-at-source schemes only automatically claim basic-rate relief (20%) on your behalf. The additional 20% (for higher-rate) or 25% (for additional-rate) is paid as a tax refund or applied as a PAYE code adjustment for the following year. If your scheme uses salary sacrifice or a net pay arrangement, full relief is given automatically at source — no separate claim is needed.
Can I get 60% pension tax relief?
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Yes — if your adjusted net income (income after pension contributions) is between £100,000 and £125,140. In this band, your £12,570 personal allowance is tapered away at a rate of £1 lost for every £2 of income, creating a 60% effective income-tax marginal rate. Every £1 you contribute to a pension reduces your adjusted net income £-for-£, so you avoid 40p of income tax AND restore 50p of personal allowance worth 20p — a total saving of 60p. Use our 60% Tax Trap calculator to model exactly how much pension contribution puts you back below £100k.
What is the pension annual allowance for 2026/27?
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The standard annual allowance is £60,000 of gross contributions per tax year, including both your own contributions and any employer payments. Unused allowance from the previous three tax years can be carried forward, provided you were a member of a UK-registered pension scheme in those years. Contributions above the annual allowance trigger a tax charge at your marginal income tax rate, removing the relief. The allowance is per individual, not per scheme — so if you have multiple pensions, the £60,000 limit applies across all of them combined.
Do I lose pension tax relief if my income is over £260,000?
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Yes — high earners face a 'tapered annual allowance'. If your adjusted income (broadly: total taxable income plus employer pension contributions) exceeds £260,000, your annual allowance is reduced by £1 for every £2 of income above the threshold, down to a minimum of £10,000 at adjusted income of £360,000+. There is also a 'threshold income' test (£200,000 of taxable income excluding pension contributions) that must be met before the taper applies. If your only income source is below £200,000, you keep the full £60,000 allowance regardless.
Calcsmith provides estimates based on the information you enter and the 2026/27 tax bands. Not financial advice; consult a qualified accountant or independent financial adviser for your situation.