How Pension Tax Relief Works
When you pay into a pension, the government adds tax relief to encourage saving for retirement. The amount of relief depends on your income tax band.1
- Basic rate (20%)
- £100 contribution costs £80
- Higher rate (40%)
- £100 contribution costs £60
- Additional rate (45%)
- £100 contribution costs £55
Relief at Source vs Net Pay
Most workplace pensions use one of two methods:2
- Relief at source: You pay from net income, and the pension provider claims 20% from HMRC automatically. Higher/additional-rate taxpayers claim extra relief via Self Assessment.
- Net pay: Contributions are deducted before tax, so you get relief automatically at your marginal rate.
Annual Allowance
The annual allowance for 2026-27 is £60,000. This is the maximum you can contribute across all pensions in a tax year while still getting tax relief.3
If you earn over £200,000, the allowance tapers down by £1 for every £2 above that threshold, to a minimum of £10,000 at £260,000+.
Calculate Pension Tax Relief
Use our calculator to see how much tax relief you get on your pension contributions.
Pension Tax Calculator →