When you pay into a pension, some of the money that would have gone to the taxman goes into your pension instead. That is tax relief.
How much relief you get
You get relief at the rate you pay tax. For 2026/27 in England, Wales and Northern Ireland:
| Your income | Tax rate | Relief on the slice you pay in |
|---|---|---|
| £12,571 to £50,270 | 20% | 20% |
| £50,271 to £125,140 | 40% | 40% |
| Over £125,140 | 45% | 45% |
Scotland has different tax bands, so the figures there differ.
Two ways it is paid
- Net pay: your employer takes the contribution from your pay before tax. You get all your relief automatically.
- Relief at source: you pay from your bank account and your pension provider claims 20% from the government and adds it to your pot. If you pay tax at 40% or 45%, you have to claim the extra yourself through Self Assessment or by contacting HMRC.
A worked example
You earn £60,270 and your pension provider uses relief at source. You pay in £12,000. Your provider adds £3,000, so £15,000 goes into your pension. The top £10,000 of your pay is taxed at 40%, so you can claim an extra 20% on that £10,000, which is £2,000.
| Amount | |
|---|---|
| Goes into your pension | £15,000 |
| Added by your provider | £3,000 |
| You claim back | £2,000 |
| What it really costs you | £10,000 |
This is based on the example on GOV.UK, which is from an earlier tax year. The tax bands have not changed, so the figures work the same way for 2026/27.
Try your own numbers in the pension tax relief calculator.
The 60% effect
If your income is between £100,000 and £125,140, you lose £1 of tax-free Personal Allowance for every £2 over £100,000. A pension contribution lowers your income, so you save the 40% tax and also get some allowance back. On that slice, the saving can be about 60%.
The limits
- You get tax relief on contributions up to 100% of your yearly earnings.
- The annual allowance is £60,000 for most people. It can be lower if you have a very high income, or if you have already taken money out of a pension in some ways.
- You might be able to use annual allowance you did not use in the previous 3 tax years.
- Going over the allowance can mean a tax charge, so check with HMRC if you are near it.
Before you decide
- Money in a pension is locked away until you reach the minimum pension age. It is currently 55 and is due to rise, so check GOV.UK for the age that applies to you.
- If your income is below the Personal Allowance, net pay gives no relief, but relief at source still adds 20%.
- Pensions are an addition to your State Pension, not a replacement.
- This is general information, not tax advice.
Sources
- GOV.UK: Tax relief on pension contributions
- GOV.UK: Income Tax rates and bands
- GOV.UK: Pension annual allowance
This article is for education and is not financial, tax or legal advice. Figures are checked against the sources above and may change. Read the full disclaimer.