Key takeaways
- You get tax relief on personal pension contributions up to 100% of your earnings, or £3,600 gross if you have little or no earnings.
- Relief at source schemes add 20% automatically; higher and additional rate taxpayers must claim the rest through Self Assessment or HMRC.
- The annual allowance is £60,000, tapering to £10,000 for adjusted income over £260,000, and you can carry forward unused allowance from the last three years.
- Once you flexibly access a pension pot, the Money Purchase Annual Allowance of £10,000 applies.
- Salary sacrifice also saves National Insurance, though sacrificed contributions above £2,000 a year will attract NI from April 2029.
Pension tax relief means part of every contribution comes from the government. It is the most generous relief most people will ever use, but how you receive it depends on the type of scheme, and higher rate taxpayers often miss part of what they are owed.
The three ways relief is given
Relief at source
Used by all personal pensions, SIPPs and stakeholder pensions, and some workplace schemes. You pay contributions out of taxed income and the provider claims 20% from HMRC and adds it to your pot.
| You pay | Provider adds | In your pension |
|---|---|---|
| £80 | £20 | £100 |
| £800 | £200 | £1,000 |
| £8,000 | £2,000 | £10,000 |
Non-taxpayers still get the 20% top-up, on contributions up to £2,880 a year (£3,600 gross).
Net pay arrangements
Many workplace schemes take your contribution from your pay before Income Tax is worked out, so you get relief at your highest rate automatically. Nothing needs to be claimed. The drawback is for people earning less than the Personal Allowance, who pay no tax and so receive no relief through net pay, unlike relief at source.
Salary sacrifice
You agree to a lower salary and your employer pays the difference into your pension. You save Income Tax and employee National Insurance, and your employer saves 15% employer NI. From 6 April 2029, salary-sacrificed pension contributions above £2,000 a year will be subject to employee and employer NI; the Income Tax saving is unaffected.
Claiming higher and additional rate relief
Under relief at source, the provider only claims 20%. If you pay tax at 40% or 45%, you are owed more, and you must claim it.
How it works: your basic rate band is extended by the gross contribution, so that amount of income is taxed at 20% instead of 40% (or at 40% instead of 45%).
Example: Jordan earns £75,000 and pays £8,000 into a SIPP, which becomes £10,000 gross.
| Amount | |
|---|---|
| Basic rate relief added by the provider | £2,000 |
| Extra relief from extending the basic rate band by £10,000 (20% of £10,000) | £2,000 |
| Total relief | £4,000 |
| Net cost of £10,000 in the pension | £6,000 |
Claim through your Self Assessment return, or if you do not file one, by contacting HMRC, which can adjust your tax code. Claims can be made for the previous four tax years. Scottish taxpayers paying 21%, 42%, 45% or 48% claim the extra in the same way.
Limits on tax relief
100% of earnings
Personal contributions only get relief up to 100% of your relevant UK earnings in the tax year (salary, bonuses, self-employed profits), or £3,600 gross if higher. Dividends, rental income and savings interest are not relevant earnings, so a company director taking a small salary and large dividends can only make limited personal contributions with relief. Employer contributions are not limited by your earnings.
The annual allowance
The annual allowance caps total pension savings with tax relief each year, including employer contributions, at £60,000 for 2026/27.
| Situation | Annual allowance |
|---|---|
| Standard | £60,000 |
| Adjusted income over £260,000 (and threshold income over £200,000) | Reduced by £1 for every £2 over £260,000, to a minimum of £10,000 |
| After flexibly accessing a defined contribution pension | Money Purchase Annual Allowance of £10,000 for defined contribution savings |
If you go over, an annual allowance charge recovers the relief at your marginal rate through Self Assessment. If the charge is more than £2,000 you can usually ask your scheme to pay it from your pension (“scheme pays”).
Carry forward
You can use unused annual allowance from the three previous tax years, provided you were a member of a registered pension scheme in those years. You must use the current year’s allowance first. Carry forward is not available against the Money Purchase Annual Allowance.
Employer contributions
Contributions paid by your employer are not taxable on you and do not create a benefit in kind. For the employer, they are normally deductible for Corporation Tax or Income Tax, which makes them an efficient way for company directors to extract profit; see higher rate tax planning.
Pension contributions and adjusted net income
Gross personal contributions under relief at source reduce your adjusted net income. This can restore the Personal Allowance for income between £100,000 and £125,140, and reduce or remove the High Income Child Benefit Charge.
Taking money out
- You can usually take 25% tax-free, up to the Lump Sum Allowance of £268,275, with the rest taxed as income.
- The minimum age to access a personal or workplace pension is 55, rising to 57 from 6 April 2028.
- From 6 April 2027 unused pension funds and death benefits will normally be included in your estate for Inheritance Tax.
Frequently asked questions
How much tax relief do I get on pension contributions?
At your highest rate of Income Tax: 20%, 40% or 45% (or the Scottish equivalents). Relief at source schemes add 20% and you claim the rest.
How do I claim 40% tax relief on my pension?
Enter your gross personal contributions on your Self Assessment return, or contact HMRC if you do not file a return. HMRC extends your basic rate band by that amount.
What is the pension annual allowance for 2026/27?
£60,000, including employer contributions. It is lower if your adjusted income is over £260,000, or £10,000 for defined contribution savings once you have flexibly accessed a pension.
Can I pay into a pension if I have no earnings?
Yes. You can pay up to £2,880 a year and receive basic rate relief, making £3,600 gross.
Do dividends count as earnings for pension relief?
No. Only employment income and self-employed profits count as relevant UK earnings for personal contributions.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.