Almost nobody knows the answer to this question about their own pension, and it decides two things that matter: whether you have tax relief sitting unclaimed with HMRC, and — if you earn under the personal allowance — whether you have been getting any relief at all.
The short version: look at where the pension deduction sits on your payslip. If it comes off after tax, you are on relief at source. If it comes off before tax, you are on a net pay arrangement or salary sacrifice. That single observation tells you everything else on this page.
Already know which one you’re on? Our free pension tax relief calculator takes the method, your salary and your contribution, and shows what actually lands in your pension, what it costs you after relief, and whether anything is still sitting with HMRC.
The ten-second payslip check
Open any recent payslip and find the pension line. You are looking for its position relative to the tax calculation, not its size.
- Pension deducted after income tax, with your taxable pay unchanged by it → relief at source.
- Pension deducted before income tax, so your taxable pay is lower than your gross pay by the contribution → net pay arrangement.
- Your gross salary itself is reduced — the headline figure is lower than your contractual salary, and the pension may not appear as a deduction at all → salary sacrifice.
If the payslip genuinely isn’t clear, and plenty of them aren’t, ask payroll or your pension provider. It is a one-line question that they answer every day, and it is worth the email.
One useful clue: if your provider’s statements show a contribution larger than the amount that left your pay — typically 25% larger — that is relief at source, and the difference is the basic-rate relief your provider reclaimed on your behalf.
The three arrangements
Relief at source
You pay in out of money that has already been taxed. Your provider then claims the basic rate back from HMRC and adds it to your pot: hand over £80 and £100 arrives. That happens automatically, whether or not you pay any tax at all.
What does not happen automatically is anything above the basic rate. If you pay tax at a higher rate, the difference between the basic rate and your rate has to be claimed, and it comes back to you as cash rather than going into the pension. Most personal pensions work this way, along with a good number of workplace schemes.
Net pay arrangement
Your contribution is taken out of your gross pay before income tax is calculated. Because your taxable pay is lower, you simply never pay tax on that money in the first place — so you get relief at your own marginal rate immediately, with nothing to claim and no forms. Common in occupational and public-sector schemes.
This is the tidiest arrangement for higher earners. It has one significant flaw, covered below.
Salary sacrifice
Strictly a variation on net pay. You agree to give up part of your contractual salary and your employer pays that amount into your pension instead. Because your gross salary is genuinely lower, you save income tax and National Insurance, which none of the other methods do.
It is the most efficient of the three on pure arithmetic, and it has real trade-offs — a lower salary figure is what lenders and some benefits look at. We cover those in salary sacrifice: what you gain and what you give up.
Side by side
| Relief at source | Net pay | Salary sacrifice | |
|---|---|---|---|
| Contribution taken | After tax | Before tax | Salary reduced first |
| Basic-rate relief | Added by provider | Automatic | Automatic |
| Higher-rate relief | You must claim it | Automatic | Automatic |
| Saves National Insurance | No | No | Yes |
| If you earn under the personal allowance | You still get 20% | No relief at the time — but see below | Rarely offered |
If you’re a higher-rate taxpayer
This is where the method costs people real money. On net pay and salary sacrifice, your full relief is automatic. On relief at source, the portion above the basic rate is not — it waits until you ask for it.
Plenty of people have paid into a relief-at-source pension for years at the higher rate without ever claiming, usually because nobody told them there was anything to claim and they don’t file a tax return. You do not need to file one: there is an online service and a postal route. Our guide to claiming higher-rate pension tax relief walks through all three options and what to have ready.
One thing to brace for: the amount is usually smaller than people expect, because higher-rate relief only applies to income genuinely taxed at the higher rate, not to your whole contribution.
If you earn under the personal allowance
Here is the part that almost never gets written about, and it affects well over a million people — around three quarters of them women, largely because of part-time work.
If you earn less than the personal allowance you pay no income tax, so there is no tax to relieve. Under relief at source that doesn’t matter: your provider still adds 20%, and you keep it. Under a net pay arrangement it did matter enormously — you got relief at your marginal rate, which was 0%. Two people on identical pay, in identical jobs, saving identical amounts, ended up with materially different outcomes purely because of a scheme design neither of them chose.
That gap has now been addressed. From the 2024/25 tax year onwards, HMRC makes top-up payments to people who contributed to a net pay scheme with taxable income below the personal allowance. The payment is worth the basic-rate relief you didn’t receive, bringing you into line with someone on relief at source. HMRC identifies who qualifies from information it already holds — you do not have to apply or prove entitlement — and payments are made after the end of the tax year concerned.
Two practical points. First, the top-up is paid into your bank account, so HMRC will contact eligible people and invite them to supply bank details through a digital service. Second, and this follows from the first: that is exactly what a scam looks like. A message out of the blue about a pension refund, asking for your bank details, is the single most common shape of fraud in the UK. The scheme is real, but never act on a text, email or call by clicking a link in it. Go to GOV.UK yourself, or ring HMRC on a number you have looked up independently, and check from that end. A genuine top-up will still be there in ten minutes.
Can you change which one you’re on?
Not unilaterally. The method is a feature of the scheme your employer has set up, not a personal setting, and you cannot switch your own contributions from one to another.
What you can sometimes do is ask. Some employers offer salary sacrifice as an option alongside a standard arrangement, and it costs nothing to find out whether yours does — employers often save money on it too, which is why they are frequently willing. If you have both a workplace scheme and a personal pension, they may well use different methods, and it is worth knowing which is which before you claim anything.
Frequently asked questions
Which method is best?
On arithmetic alone, salary sacrifice, because it is the only one that saves National Insurance as well as income tax. Between the other two, net pay is more convenient for higher-rate taxpayers because relief is automatic, while relief at source is better for very low earners. But you rarely get to choose, so the useful question is not which is best — it is which you are on, and what that means for you.
Does the method change how much ends up in my pension?
No. The same gross contribution reaches your pot either way. What changes is how much it costs you from take-home pay, and whether you have to ask for part of the relief.
My provider’s statement shows more than I paid in. Is that a mistake?
Almost certainly not — it is the signature of relief at source. You paid 80% and your provider reclaimed the other 20% from HMRC.
I’m a basic-rate taxpayer. Does any of this affect me?
Not much. You get 20% relief either way, just by different routes. The exception is if you earn under the personal allowance, in which case the section above is the important one.
I’m in Scotland. Is this different?
The mechanics are the same, but the amounts are not, because Scotland has more tax bands and different rates. See pension tax relief in Scotland.
Can I be on more than one at once?
Yes, if you have more than one pension. A workplace scheme and a personal pension can easily use different methods, and the claiming position differs for each.
Where to go from here
- Pension tax relief calculator — put in your method and see what it costs you
- How to claim higher-rate pension tax relief — the three routes, and how far back you can go
- Salary sacrifice: what you gain and what you give up — the honest trade-off
- Salary calculator — what your contribution does to your monthly take-home
This is general information about how pension tax relief is administered, not financial advice. Rates and thresholds are for the 2026/27 tax year and change at fiscal events. Only HMRC can confirm your own position, including any top-up you may be due. For advice tailored to your circumstances, speak to a regulated financial adviser; for free and impartial guidance, MoneyHelper is a good place to start, and the underlying rules are on GOV.UK. If you are ever contacted unexpectedly about a tax refund, check it independently — GOV.UK publishes guidance on reporting suspicious contact.
Last updated: July 2026