Question 1

How does pension tax relief work in the UK?

Accepted Answer

When you contribute to a pension, the government adds tax relief at your marginal rate. The mechanism depends on your scheme. With 'relief at source' (most personal pensions and SIPPs), you pay the net amount and your provider claims 20% basic-rate relief from HMRC — so a £800 contribution becomes £1,000 in your pension. If you're a higher (40%) or additional (45%) rate taxpayer you claim the extra through your self-assessment tax return. With 'net pay' workplace schemes, your contribution is deducted from your gross salary before PAYE, so you automatically get relief at your full marginal rate.

Question 2

What is the annual allowance for pensions in 2025/26?

Accepted Answer

The annual allowance is £60,000 for 2025/26. This covers both your personal contributions (grossed up) and employer contributions combined. If you haven't used your full allowance in the past three years you may be able to carry forward the unused amount — potentially allowing contributions well above £60,000 in a single year. The Money Purchase Annual Allowance (£10,000) applies if you have already flexibly accessed your pension.

Question 3

What is the tapered annual allowance?

Accepted Answer

If your 'threshold income' exceeds £200,000 and your 'adjusted income' exceeds £260,000, your annual allowance is reduced — by £1 for every £2 of adjusted income above £260,000 — down to a minimum of £10,000. This affects high earners and company directors with significant employer contributions. Speak to a pension specialist if you're in this territory.

Question 4

Can I carry forward unused pension allowance?

Accepted Answer

Yes. You can carry forward unused annual allowance from the three previous tax years, as long as you were a member of a registered pension scheme in those years. This can be very powerful: if you haven't contributed much in 2022/23, 2023/24, or 2024/25, you may be able to make a much larger contribution in 2025/26 and still receive full tax relief. You must use the current year's allowance first before drawing on carry-forward.

Question 5

Are employer pension contributions tax-free?

Accepted Answer

Yes — employer pension contributions are not treated as a benefit in kind, so they don't show up on your P60 or attract income tax or NICs. They go straight into your pension at full value. This is one reason salary sacrifice (where your employer increases their pension contribution in exchange for a reduced salary) is so effective: both you and your employer save National Insurance.

Question 6

What is the difference between relief at source and net pay?

Accepted Answer

With 'relief at source' you contribute a net amount and your pension provider claims the 20% basic-rate top-up from HMRC automatically. Higher-rate taxpayers must claim the additional relief through self-assessment. Non-taxpayers still benefit from the 20% top-up. With 'net pay', contributions are taken from your gross salary before PAYE is applied, giving you relief at your full marginal rate automatically — but non-taxpayers receive no relief. Most workplace schemes use net pay; most personal pensions (including SIPPs) use relief at source.

Pension Tax Relief Calculator 2025/26

Frequently asked questions

Related calculators

Take-Home Pay

Salary vs Dividends

Personal Allowance Trap