How much pension tax relief do I get?

Basic rate (20%) taxpayers get 20% relief, so a £80 contribution becomes £100 in your pension. Higher rate (40%) taxpayers can claim an additional 20% via Self-Assessment, making the effective cost of a £100 pension contribution just £60. Additional rate (45%) taxpayers can claim an additional 25%, making the effective cost just £55 per £100 in pension.

What is the pension annual allowance for 2025/26?

The annual allowance is £60,000 or 100% of your earnings, whichever is lower. This covers both your contributions and employer contributions. High earners with adjusted income over £260,000 face a tapered annual allowance, reducing by £1 for every £2 over the threshold, to a minimum of £10,000.

What is relief at source vs net pay arrangement?

Relief at source: you contribute from your net pay and the provider claims 20% basic rate relief from HMRC, adding it to your pension pot. Net pay arrangement: contributions are taken from your gross pay before tax, so you automatically get tax relief at your marginal rate. Most workplace schemes (NEST, etc.) use net pay for employed workers. Most SIPPs and personal pensions use relief at source.

Can non-taxpayers get pension tax relief?

Non-taxpayers can get 20% basic rate relief on personal pension contributions up to £3,600 per year (gross) if their scheme uses the 'relief at source' method. This means a non-earner or low earner can put in £2,880 and the pension becomes £3,600. However, those in net pay arrangement schemes get no relief if they pay no tax — this is a known unfairness that the government has been working to address.

Is pension better than an ISA for saving?

For most higher and additional rate taxpayers, pensions usually win because of upfront tax relief. A higher rate taxpayer investing £100 into a pension has it cost just £60 after relief, giving an immediate 67% return before investment growth. ISAs offer no upfront relief but all growth and withdrawals are tax-free, with more flexible access. Pensions are usually better for retirement savings; ISAs better for flexible savings or those likely to be basic rate taxpayers in retirement.

What is salary sacrifice and does it give more pension tax relief?

Salary sacrifice means you formally take a lower salary and the difference is paid into your pension as employer contribution. This saves you both income tax AND National Insurance on the contributed amount. For a basic rate taxpayer, effective savings are around 32% (20% tax + 12% NI). Employers also save 13.8% employer NI, and many employers pass some of this saving into your pension. Salary sacrifice is the most tax-efficient method for employed workers.

How does carry forward work for pension contributions?

Carry forward allows you to use unused annual allowance from the previous 3 tax years to make a larger contribution in the current year. This is useful if you receive a windfall, bonus or inheritance. You must have been a member of a registered pension scheme in each of the years from which you're carrying forward. Your contribution still cannot exceed your earnings in the current year.

When should I seek professional advice about pension tax relief?

Seek professional financial advice if: your income is near or over £100,000 (personal allowance taper), your income is near £260,000 (tapered annual allowance), you want to use carry forward, you have multiple pension pots, you're approaching or exceeding the annual allowance, or you are self-employed and want to maximise contributions. A regulated financial adviser or pension specialist can help optimise your strategy.

Can employer pension contributions reduce my tax bill?

Employer pension contributions count towards your annual allowance and are not taxable income for you. They do not reduce your personal tax bill as such — they are simply not taxed in the first place. However, if you use salary sacrifice, your gross salary falls, reducing the income tax and National Insurance you pay directly. Employer contributions also do not reduce your adjusted net income for Child Benefit or Personal Allowance taper purposes.

What is the pension lifetime allowance in 2026?

The pension Lifetime Allowance (LTA) was abolished from 6 April 2024. Previously it was £1,073,100. The new rules replace it with a 'lump sum allowance' (£268,275 tax-free lump sum at retirement) and a 'lump sum and death benefit allowance'. The effective limit on pension pots has therefore been removed, though large pension funds will still face tax on certain lump sum withdrawals above the allowance.

What tax do I pay when I withdraw from my pension?

From age 55 (rising to 57 in 2028), you can take up to 25% of your pension tax-free (capped at £268,275 total). The remaining 75% is taxed as income at your marginal rate when withdrawn. This is why pension tax relief is so valuable — you contributed from before-tax income (getting relief upfront) and in retirement may pay a lower rate of tax than when you were working.

How does Scottish income tax affect pension tax relief?

Scottish taxpayers pay different rates of income tax (19%, 20%, 21%, 42% and 48% for the higher bands in 2025/26) but pension relief at source is still provided at 20% basic rate. Scottish higher or top rate taxpayers who contribute to a relief-at-source scheme must claim the additional relief above 20% via a Scottish Self-Assessment return. NEST and many workplace schemes in Scotland use net pay, which automatically gives relief at the correct Scottish marginal rate.

Can I contribute to a pension if I don't work?

Yes. Non-workers can contribute up to £3,600 gross per year (£2,880 net contribution, with 20% basic rate relief added by the provider if using relief at source). This applies to children too — parents can contribute up to £2,880/year into a Junior SIPP for a child, and the government adds 20% basic rate relief. This is a powerful long-term saving strategy given decades of potential investment growth.

Is there pension tax relief on salary sacrifice contributions?

Salary sacrifice contributions are employer contributions in legal terms — the employer pays them directly into your pension. They attract no income tax or National Insurance for you, and no employer NI for the employer either. This dual NI saving makes salary sacrifice more tax-efficient than personal pension contributions. The trade-off is lower pensionable pay for other calculations (e.g. mortgage affordability, certain employee benefits).

What is the minimum employer pension contribution for auto-enrolment?

Under UK auto-enrolment rules, employers must contribute at least 3% of qualifying earnings (between £6,240 and £50,270 per year in 2025/26). Employees must contribute at least 5% of qualifying earnings (including tax relief). The combined minimum is 8%. Many employers and schemes contribute significantly more than the minimum. You can always choose to contribute more than 5% to boost your pension pot.

What is the difference between a SIPP and a workplace pension?

A SIPP (Self-Invested Personal Pension) is a personal pension where you choose your own investments from a wide range, and the contributions are made from post-tax income with 20% relief added by the provider (relief at source). Workplace pensions are set up by your employer, often use net pay arrangement (auto relief at marginal rate), and may include employer contributions and sometimes lower charges. You can have both, and many people transfer old workplace pensions into a SIPP for greater investment choice.

How does the money purchase annual allowance (MPAA) work?

Once you flexibly access your defined contribution pension (e.g. take income from a drawdown pot), your annual allowance for defined contribution pensions reduces to £10,000 — the Money Purchase Annual Allowance (MPAA). This limits further pension contributions after you've started drawing income. The MPAA does not apply to the state pension or defined benefit pensions. It's designed to prevent recycling pension withdrawals back as contributions to gain repeated tax relief.

What is the personal allowance taper and does it affect pension contributions?

If your income exceeds £100,000, your personal allowance (£12,570 in 2025/26) is reduced by £1 for every £2 over £100,000. It reaches zero at £125,140. This effectively creates a 60% marginal tax rate on income between £100,000 and £125,140 (40% income tax + 40% on the lost personal allowance). Making pension contributions reduces adjusted net income, potentially restoring your personal allowance. This makes pension contributions extremely valuable for those earning in this band.

Are employer pension contributions subject to tax or NI?

No. Employer contributions to registered pension schemes are exempt from income tax and from employer and employee National Insurance. This is one of the reasons salary sacrifice is so effective — the employer pays into your pension from gross pay, and neither party pays NI on that amount. Employer contributions also do not count as a benefit in kind. The total of employer and employee contributions is subject to the annual allowance.

What is pension tax relief at source in simple terms?

Relief at source is the most common method for personal pensions and SIPPs. You pay contributions from your after-tax (net) pay. The pension provider then claims 20% basic rate tax relief from HMRC and adds it to your pension. For every £80 you pay in, your pension receives £100. Higher and additional rate taxpayers claim the extra relief via Self-Assessment. This method works for everyone, including non-taxpayers (up to £2,880 net/year).

How do I claim pension tax relief if I'm not doing Self-Assessment?

If you're an employed PAYE taxpayer and don't normally submit a Self-Assessment return, you can claim higher or additional rate pension tax relief by contacting HMRC directly. HMRC can adjust your tax code to give you relief via your salary, or you can write to them. Many people are unaware of this and miss out on years of higher rate relief. Even if you haven't claimed for several years, HMRC can generally backdate claims by up to 4 tax years.

Does pension tax relief affect my Income Tax band?

Your pension contributions reduce your adjusted net income, which in turn reduces your effective taxable income. This can move you into a lower tax band. For example, if you earn £55,000 and make £10,000 in pension contributions, your taxable income becomes £45,000, keeping you entirely in the basic rate band and avoiding the 40% higher rate. Careful pension contribution planning can legitimately reduce your income tax bill by thousands per year.

What is the annual allowance for 2025/26?

The annual allowance for 2025/26 is £60,000, or 100% of your earnings, whichever is lower. This covers all pension contributions including your own contributions, employer contributions, and any government top-ups. For very high earners (adjusted income above £260,000), the tapered allowance reduces this figure. Unused annual allowance from the previous 3 years can be carried forward and used in the current year.

Is pension tax relief changing in the UK?

As of February 2026, the current UK pension tax relief system — basic, higher and additional rate relief on contributions — remains in place. The Lifetime Allowance was abolished in April 2024. There have been ongoing discussions about moving to a flat rate of relief for all taxpayers (e.g. 25% or 30%) to make the system simpler and more equitable, but no changes were announced in the Autumn Budget 2024. Monitor the HMRC website and Budget announcements for any changes.

Can I contribute more than my earnings to a pension?

No. Your pension contributions (not including employer contributions) cannot exceed your total UK earnings in a tax year and still attract tax relief. If you have earnings of £30,000, you can contribute up to £30,000 and get tax relief on all of it (assuming this is within the annual allowance). Contributions above your earnings can be made but do not attract tax relief. Non-earners are limited to £3,600 gross (£2,880 net) with relief at source.

How does pension drawdown affect tax in retirement?

Pension drawdown allows you to take income flexibly from age 55 (rising to 57 in 2028). Up to 25% of the fund (capped at £268,275) can be taken tax-free. Income drawn from the remaining 75% is taxed as regular income at your marginal rate. In retirement, many people are in a lower tax band than during their working years, meaning the effective tax on pension withdrawals is less than the relief received during contribution years — creating a net tax advantage.

What is a defined benefit pension and does it attract tax relief?

A defined benefit (DB) or 'final salary' pension pays a guaranteed income in retirement based on your salary and years of service. Employee contributions to DB schemes attract full income tax relief at your marginal rate, typically through the net pay arrangement. Employer DB contributions also attract no income tax or NI. The annual allowance applies to DB pensions but is measured differently — using a 'pension input amount' based on the value of the accrued benefit, which can be complex to calculate.

Should I consolidate old pension pots?

Consolidating multiple old pension pots into one SIPP can simplify management, reduce charges and improve investment choice. However, before transferring, check whether any old pension has: guaranteed annuity rates (GAR), defined benefit promises, enhanced protection or final salary benefits — these can be extremely valuable and may be lost on transfer. For safeguarded benefits worth more than £30,000, regulated financial advice is required by law before any transfer can proceed.

Does making pension contributions affect my Child Benefit eligibility?

Yes, in a positive way. Pension contributions reduce your adjusted net income, which determines whether you pay the High Income Child Benefit Charge. If your income is between £60,000 and £80,000, making sufficient pension contributions could bring your adjusted net income below £60,000 and eliminate the HICBC entirely. This makes pension contributions doubly effective for families receiving Child Benefit where one parent earns in this band.

How does pension tax relief work for the self-employed?

Self-employed individuals contribute to a personal pension or SIPP using their net (after-tax) income. The pension provider claims 20% basic rate relief at source from HMRC. If you're a higher rate taxpayer (profits over £50,270 in 2025/26), you claim the additional 20% relief via your Self-Assessment return. Self-employed people get no employer contributions by default, making it especially important to maximise personal contributions to benefit from the upfront tax relief. The annual allowance applies in the same way as for employees.

At what age can I access my pension?

The minimum pension access age (NMPA) is currently 55. This is scheduled to rise to 57 in April 2028. From that date, you can access defined contribution pensions from age 57. State Pension age is currently 66, rising to 67 between 2026 and 2028, and eventually 68 in the 2040s. You can take up to 25% of your pension as a tax-free lump sum from the minimum access age, with income drawn from the remainder taxed as regular income.

What is the best way to boost my pension contributions as an employee?

The most tax-efficient method for employed workers is salary sacrifice through your workplace scheme, which saves both income tax and National Insurance. If your employer doesn't offer salary sacrifice, use the workplace pension if it attracts employer matching (always take the full employer match — it's free money), and supplement with a SIPP for additional relief-at-source contributions. Maximise contributions when earnings are at their highest marginal rate to get the greatest relief. Always stay within the annual allowance.

Can I get pension tax relief on contributions I make for my spouse?

You can contribute to your spouse's or civil partner's pension, but the relief is based on their earnings (not yours). If your spouse doesn't earn, they can still receive contributions of up to £2,880/year net into a relief-at-source pension, with the provider claiming 20% basic rate relief from HMRC, bringing the total to £3,600/year. This is a useful strategy for non-earning spouses or partners to accumulate pension savings and future NI qualifying years.

What records do I need for pension tax relief claims?

Keep records of: all pension contribution confirmations from your provider, workplace payslips showing pension deductions, annual pension statements, any Gift Aid donations (which also reduce adjusted net income), and Self-Assessment returns where you claimed higher rate relief. HMRC can audit pension tax claims up to 4 years after the tax year end. Store records securely for at least 5 years. If you claim via Self-Assessment, the return itself is the formal record of your relief claim.

Is pension tax relief worth it compared to paying off a mortgage?

The decision depends on your mortgage interest rate versus expected pension returns, your tax rate, and your employer's pension matching. For most higher rate taxpayers: a £100 pension contribution costs £60 after relief and could grow at 5–7%/year over decades. Paying off a mortgage reduces a 4–5% interest cost. The immediate 67% uplift on pension contributions (from higher rate relief) usually makes pension contributions more attractive than mortgage overpayment for higher rate taxpayers, especially while employer matching is available. Basic rate taxpayers face a closer decision.

What happens to my pension tax relief if I leave the UK?

If you leave the UK and become non-resident, you can generally continue to make UK pension contributions and claim tax relief for up to 5 years after leaving, provided you were a UK resident for at least one of the last 5 tax years. Contributions are limited to £3,600 gross if you have no UK earnings. You should take professional advice on the tax implications in both the UK and your new country of residence, as double taxation agreements and local pension tax rules vary significantly.

Does pension tax relief affect my tax code?

If your pension uses the net pay arrangement (contributions taken before tax from payroll), your pension is deducted before PAYE is calculated, so your tax code does not change for pension purposes. If you use a SIPP or relief-at-source scheme and claim higher rate relief via Self-Assessment, HMRC may update your tax code to give you relief via your employer payroll going forward, rather than waiting for the annual return. This gives you the relief throughout the year rather than as a lump sum.

Can I take all my pension as a lump sum?

Yes, but only the first 25% (up to the £268,275 lump sum allowance) is tax-free. The rest is taxable income in the year you take it. Taking large lump sums pushes you into higher tax bands and can result in large tax bills. HMRC often taxes emergency lump sums on an emergency tax code (Month 1 basis), leading to significant over-deduction — you then claim a refund. Most financial advisers recommend spreading withdrawals over multiple tax years to minimise the total tax bill.

How do I find out how much pension I have?

Contact your pension provider(s) directly for a current statement. HMRC's Pension Tracing Service (0800 731 0193 or gov.uk/find-pension-contact-details) can help you trace lost pensions from previous employers. The government's Pensions Dashboard (being rolled out) will eventually show all your UK pensions in one place. Check the National Insurance and State Pension forecast at gov.uk/check-state-pension to see your projected State Pension.

What is the difference between net pay arrangement and relief at source?

Net pay: contributions are taken from your gross pay before income tax is calculated. You automatically get relief at your marginal rate (20%, 40% or 45%). The pension provider does not need to claim anything from HMRC. Best for higher and additional rate taxpayers. Relief at source: you contribute from your net (after-tax) pay, and the provider claims 20% basic rate relief from HMRC on your behalf. Higher/additional rate taxpayers must claim extra relief via Self-Assessment. Works for non-taxpayers. Most workplace pensions use net pay; most personal pensions and SIPPs use relief at source.

Are pension contributions deductible for Self-Assessment?

Yes. On your Self-Assessment tax return, you declare personal pension contributions (gross amount) in the relevant box. HMRC then calculates any additional tax relief owed above the 20% basic rate claimed by your provider. For self-employed individuals, pension contributions also reduce your adjusted net income, which affects the Personal Allowance taper, High Income Child Benefit Charge, and other income-related calculations. Always include pension contributions accurately on your Self-Assessment return.

What is a QROPS and is it relevant to UK pension tax relief?

QROPS (Qualifying Recognised Overseas Pension Scheme) allows UK pension holders who have permanently emigrated to transfer their pension overseas without a UK tax charge (previously subject to an Overseas Transfer Charge in some cases). QROPS are primarily relevant for those leaving the UK permanently. They are not a tool for enhancing UK pension tax relief — contributions and relief work under standard UK rules until you transfer. Professional advice is essential before any QROPS transfer, as the rules are complex and mistakes are costly.

What is the pension input period?

The pension input period aligns with the UK tax year (6 April to 5 April). All pension contributions made during this period count towards your annual allowance for that tax year. This includes your contributions, your employer's contributions, and any other payments to your scheme. When checking whether you've exceeded your annual allowance or want to use carry forward, you calculate your pension input amounts for the current and prior 3 tax years.

What is the difference between a personal pension and a SIPP?

Both are types of defined contribution personal pension attracting the same tax relief. The main difference is investment choice. A personal pension offers a limited range of investments selected by the provider. A SIPP (Self-Invested Personal Pension) allows you to choose from a very wide range including shares, funds, ETFs, bonds and sometimes property. SIPPs typically require more investment knowledge and may have higher charges for active management. Both use the relief at source system. Both have the same annual allowance and tax rules.

How does pension tax relief affect National Insurance?

Income tax relief is available on pension contributions at your marginal rate. National Insurance relief depends on the method. Salary sacrifice gives NI savings for both employee and employer (contributions are treated as employer contributions and escape NI entirely). Personal pension or SIPP contributions made from take-home pay do NOT attract NI relief — only income tax relief. This is why salary sacrifice, where available, is more efficient than personal pension contributions for the employed.

How much should I be contributing to my pension?

A common rule of thumb is to contribute half your age as a percentage of your salary each year (e.g. starting at 25 = contribute 12.5%). A widely-cited target is saving enough to achieve a pension pot of 10-15x your final salary by retirement. For a comfortable retirement at 67, many financial planners suggest a target income of £25,000–£37,500/year (including State Pension of approximately £11,500). Use the government's pension projector at MoneyHelper.org.uk to model your situation. Always maximise employer matching before making personal contributions elsewhere.

Is there a limit on how many pensions I can have?

There is no legal limit on the number of pension schemes you can be a member of. You can have multiple workplace pensions from different employers, one or more SIPPs, and any personal pensions, all simultaneously. The annual allowance applies to the combined total of all contributions across all your pensions. Managing multiple pensions can be complex — many people choose to consolidate into a single SIPP. However, always check for valuable guarantees before transferring.

Does pension tax relief apply to the State Pension?

No. The State Pension is funded by National Insurance contributions, not pension tax relief. Your NI contributions during working life build your entitlement to State Pension. The State Pension itself is taxable income in retirement (though most pensioners pay no tax if their only income is the State Pension, as it falls below the personal allowance). Pension tax relief applies only to private, workplace and personal pensions — not the State Pension.

Pension Tax Relief at a Glance: 2025/26

Q: How do I claim higher rate pension tax relief?

Higher and additional rate taxpayers must claim the extra relief above 20% via Self-Assessment (tax return SA100). Your pension provider claims 20% basic rate relief at source. You then claim the additional 20% (higher rate) or 25% (additional rate) through your Self-Assessment return or by writing to HMRC if you don't normally complete a return.

Q: What is the tapered annual allowance?

The tapered annual allowance applies to high earners. If your 'adjusted income' (including employer contributions) exceeds £260,000, your annual allowance reduces by £1 for every £2 above this threshold, down to a minimum of £10,000 per year. The threshold income (personal income without employer contributions) must also exceed £200,000 for tapering to apply. Professional advice is recommended if your income approaches these levels.

20%

Basic rate taxpayer

£80 in → £100 in pension

Auto via scheme

40%

Higher rate taxpayer

£60 in → £100 in pension

Claim extra 20% via SA

45%

Additional rate taxpayer

£55 in → £100 in pension

Claim extra 25% via SA

Pension Tax Relief Calculator

Annual pension contribution (gross £)

Your income tax rate

Pension scheme type

Employer contribution (annual £, if any)

How Pension Tax Relief Works

Pension tax relief is the government's mechanism for returning the income tax you paid on your pension contributions. The logic is simple: you contribute from income that has already been taxed, so HMRC gives back the tax you paid. The effect is that money going into your pension is never taxed on the way in — only when you draw it down in retirement (with the first 25% tax-free up to the lump sum allowance).

The Two Methods of Delivering Relief

1. Relief at Source

Used by SIPPs and most personal pensions. You pay contributions from your net (post-tax) income. The pension provider claims 20% basic rate tax relief directly from HMRC and adds it to your pension pot. For every £80 you pay, your pension receives £100. Higher and additional rate taxpayers must claim additional relief above 20% via Self-Assessment.

2. Net Pay Arrangement

Used by most workplace pension schemes including NEST and many employer schemes. Your employer deducts pension contributions from your gross salary before calculating PAYE tax. You automatically get relief at your full marginal rate without any additional action. You don't need to claim anything extra — the relief is built into your payslip. However, non-taxpayers get no relief in net pay schemes (a known unfairness).

3. Salary Sacrifice

The most efficient method for employed workers. You formally agree to a lower salary, and the difference is paid as an employer pension contribution. This saves income tax AND National Insurance (employee 12%/2% and employer 13.8%) on the contributed amount. Many employers pass on their NI saving as additional pension contributions.

UK Income Tax Bands and Pension Relief Rates 2025/26

Income Band	Tax Rate (England/Wales/NI)	Pension Relief Rate	Extra to Claim via SA
Up to £12,570 (Personal Allowance)	0%	20% (RAS only)	0%
£12,571–£50,270	20%	20%	0%
£50,271–£125,140	40%	40% (via scheme + SA)	20%
£100,001–£125,140 (PA taper)	Effective 60%	60% effective	40% (20% + PA relief)
Over £125,140	45%	45%	25%

How to Claim Higher Rate Pension Tax Relief

Register for Self-Assessment at gov.uk/self-assessment-tax-returns if you haven't already
Note your pension contributions — get an annual statement from your pension provider showing total contributions made using relief at source
Enter contributions on your SA return — SA100, section on pension savings
HMRC calculates additional relief owed and either pays it as a refund or adjusts your tax code
Alternatively, if you're a PAYE taxpayer who doesn't want to complete a full return, write to HMRC with details of your pension contributions

Worked Examples

Example 1: Basic Rate Taxpayer

Annual salary: £38,000. Pension contribution: £3,000/year via SIPP (relief at source).

You deposit: £2,400 (your net contribution)
Provider claims 20% from HMRC: £600
Pension receives: £3,000
Nothing else to claim — your marginal rate is 20%

Example 2: Higher Rate Taxpayer

Annual salary: £75,000. Pension contribution: £10,000/year via SIPP (relief at source).

You deposit: £8,000
Provider claims 20%: £2,000 — pension now has £10,000
Via Self-Assessment, you claim additional 20% relief: £2,000 tax refund or tax code adjustment
Effective net cost: £8,000 − £2,000 = £6,000 for £10,000 in pension
Return on cost purely from tax relief: 67%

Example 3: Additional Rate Taxpayer

Annual income: £200,000. Pension contribution: £20,000/year gross.

Net cost via relief at source: £16,000 deposited
Provider claims 20% = £4,000 added
You claim additional 25% via Self-Assessment = £5,000 refund
Net cost: £16,000 − £5,000 = £11,000 for £20,000 in pension
Effective cost per £1 in pension: 55p

Example 4: The £100k Trap — Pension as a Solution

Income: £115,000. Personal allowance is tapered to zero. Effective marginal rate on income from £100,000 to £125,140 is 60%.

Make £15,000 gross pension contribution
Adjusted net income drops to £100,000 — full personal allowance (£12,570) restored
Tax saving: 60% x £15,000 = £9,000 in addition to the pension being funded
Net cost of £15,000 pension contribution: £6,000 after effective 60% relief

Pension vs ISA: Which Is Better for Your Money?

This is one of the most common financial planning questions. The answer depends on your tax rate:

Higher rate taxpayers: Pension almost always wins. Upfront 40% relief plus employer contributions significantly boost initial returns before any investment growth.
Basic rate taxpayers: Closer decision. Pension offers 20% upfront relief and employer contributions; ISA offers full flexibility and no tax on withdrawal. If you'll be a basic rate taxpayer in retirement, the pension's tax saving at contribution equals the tax you'll pay at withdrawal — so employer contributions and investment growth are the key differentiators.
Non-taxpayers: ISA may be better for flexibility. Pensions via relief at source still offer 20% bonus up to £3,600 gross, which is valuable for non-earners.

Pension Tax Relief: Frequently Asked Questions

How do I claim higher rate pension tax relief?

Register for Self-Assessment at gov.uk if you haven't already. On your annual tax return (SA100), declare the total gross pension contributions you made via relief-at-source schemes. HMRC calculates the additional relief owed (the difference between your marginal rate and 20% basic rate) and either issues a refund or adjusts your PAYE code so you receive the relief via reduced future tax deductions. If you haven't claimed for previous years, HMRC accepts backdated claims for up to 4 tax years.

What is the annual allowance and what happens if I exceed it?

The annual allowance is £60,000 (or 100% of earnings if lower) for 2025/26. It covers all pension inputs including your contributions, employer contributions and any growth in DB pension value. If you exceed the annual allowance without sufficient carry forward, you pay an Annual Allowance Charge via Self-Assessment equal to the excess at your marginal tax rate. This effectively claws back the tax relief on the excess. Always check your total contributions before making large one-off payments.

Can I carry forward unused pension allowance?

Yes. Unused annual allowance from the previous 3 tax years can be carried forward and used in the current year. You must have been a member of a registered UK pension scheme in each of those years. Use the current year's allowance first, then carry forward from the oldest year. The total contribution cannot exceed 100% of current year earnings. This is particularly useful if you receive a large bonus or inheritance and want to make a substantial one-off pension contribution.

Is salary sacrifice always better than a standard pension contribution?

For most employed workers, yes. Salary sacrifice saves both income tax AND National Insurance on contributed amounts. A basic rate taxpayer using salary sacrifice saves 20% income tax + 12% National Insurance = 32% saving, compared to only 20% via a personal pension contribution. Your employer may also pass on their 13.8% employer NI saving. The main trade-off is your gross salary falls, which can affect mortgage affordability calculations, life insurance cover based on salary, and some state benefit calculations.

What is the tapered annual allowance for high earners?

If your 'adjusted income' (total income including employer pension contributions) exceeds £260,000, your annual allowance is reduced by £1 for every £2 above £260,000, down to a minimum allowance of £10,000. The 'threshold income' (personal income, excluding employer contributions) must also exceed £200,000 for tapering to apply. At £360,000 adjusted income, the allowance reaches its minimum of £10,000. This primarily affects very high earners, including some NHS consultants, senior lawyers and finance professionals. Professional pension advice is essential at these income levels.

Does pension relief help if I'm near the £100,000 income boundary?

Yes, dramatically. Between £100,000 and £125,140, your personal allowance is withdrawn at 50p per £1, creating an effective 60% marginal tax rate. Making pension contributions reduces your adjusted net income below £100,000, restoring the full personal allowance. A £25,000 pension contribution for someone earning £125,140 could save up to £15,000 in tax (60% of the excess above £100,000), making the effective cost of the pension contribution just £10,000 — 40p per £1 in pension. This is one of the most powerful tax-efficient strategies in the UK tax system.

What pension tax relief is available for Scottish taxpayers?

Scottish taxpayers pay income tax at different rates to the rest of the UK. If your scheme uses net pay arrangement, pension contributions automatically attract relief at your Scottish marginal rate. If using relief at source, the provider claims 20% basic rate for all UK taxpayers. Scottish intermediate rate (21%), higher rate (42%), advanced rate (45%) and top rate (48%) taxpayers must claim additional relief above 20% via a Scottish Self-Assessment return. Scotland's rates change more frequently than UK rates, so check the current bands each tax year.

Related Pension Calculators

Mustafa Bilgic
Financial content writer specialising in UK pensions, tax and retirement planning. All figures verified against HMRC guidance for 2025/26. This guide is for information only and does not constitute regulated financial advice. Last updated: February 2026.