UK pension guide · Last reviewed 25 July 2026
Pension tax relief: relief at source, net pay and salary sacrifice
The label on a pension contribution matters. The three common arrangements can put the same amount into a pension while affecting take-home pay, tax relief and National Insurance in different ways.
Relief at source
With relief at source, you usually pay a net contribution and the pension provider claims basic-rate tax relief to add to your pot. People who pay tax above the basic rate may need to claim additional relief themselves, subject to the applicable rules.
Net pay arrangements
With a net pay arrangement, an employer takes the pension contribution from gross pay before Income Tax is worked out. This changes the taxable pay shown through payroll. National Insurance treatment is not necessarily the same as Income Tax treatment.
Salary sacrifice
Salary sacrifice changes the employment contract: salary is exchanged for an employer pension contribution. It may change Income Tax and National Insurance outcomes, but it can also affect salary-linked benefits, borrowing assessments or statutory-pay calculations. Check the employer’s terms before agreeing.
Compare the personal cost, not only the pension amount
A useful comparison asks how much leaves your take-home pay, how much reaches the pension, and whether an employer adds any National Insurance saving. It should also account for income level, tax residence and scheme-specific rules.