Relief at source
Your contribution is taken from pay after tax. Your pension provider then claims 20% basic-rate relief from HMRC and adds it to your pot, so a £100 contribution costs you £80. Higher and additional rate taxpayers can usually claim extra relief through Self Assessment.
Net pay arrangement
Your contribution is taken before Income Tax is calculated, so you receive relief at your highest rate straight away. National Insurance is still calculated on your full salary.
Salary sacrifice
You agree to a lower contractual salary and your employer pays the difference into your pension. Because your pay is lower, you pay less Income Tax, less National Insurance and potentially lower student loan repayments.
A lower salary can affect things linked to your pay, such as mortgage applications, some state benefits and life cover. Salary sacrifice cannot reduce your pay below the National Minimum Wage.
Which one do I have?
Your payslip or pension scheme documents will say. If in doubt, ask your payroll or HR team. Pension rules depend on your circumstances, and this guide is general information rather than advice.
Figures refer to the 2025/26 tax year. General information only, not financial advice.
