How UK pension tax relief works in 2026/27
The UK government incentivises pension saving by adding tax relief to your contributions at your marginal income tax rate. If you pay 20% income tax, a £100 gross contribution normally costs £80 initially under relief at source. A higher-rate taxpayer may claim additional relief that brings the eventual net cost down to £60, and an additional-rate taxpayer's net cost may be £55. The relief is the single most efficient tax wrapper available to UK savers — and many people under-use it.
The marginal rate you pay matters
| Your marginal rate | Eventual net cost | Pot receives | Relief value |
|---|---|---|---|
| 20% (basic) | £80 | £100 | £20 |
| 40% (higher) | £60 | £100 | £40 |
| 45% (additional) | £55 | £100 | £45 |
Higher and additional-rate taxpayers claiming relief at source get the basic 20% added automatically by the pension provider; the remaining 20% or 25% must be claimed via self-assessment. The calculator above shows the total relief including the self-assessment claim.
Relief at source vs net pay — similar mechanics, sometimes different outcomes
For many basic- and higher-rate taxpayers the eventual relief is similar, but it is not always identical. Withrelief at source (used by most workplace pensions and all personal SIPPs), your contribution is deducted from your net take-home pay, and the pension provider claims the basic 20% back from HMRC. Withnet pay arrangement (used by some workplace pensions), the contribution is taken from your gross pay before tax is calculated, so you receive the full marginal-rate relief immediately without needing to claim via self-assessment.
An eligible non-taxpayer, or a Scottish taxpayer whose contribution would otherwise save tax at the 19% starter rate, normally still receives a 20% provider addition under relief at source. A net pay arrangement only saves income tax that would otherwise have been charged. The arrangement selector therefore changes the calculation for those cases.
The Annual Allowance — the £60,000 cap
For 2026/27 the standard Annual Allowance is £60,000. This is the total amount that can go into your pension each tax year with tax relief — including both your contributions and your employer's. Contributions above the available allowance can trigger an Annual Allowance Charge. High-income savers and people who have flexibly accessed a pension may have a lower allowance. You can carry forward unused allowance from the previous three tax years.
The calculator above will display a warning if your total contribution exceeds the allowance for the year.
The Lifetime Allowance — abolished
The Lifetime Allowance (LTA), which previously capped the total amount you could hold in pensions tax-advantaged, was abolished from 6 April 2024. There is no longer a lifetime cap on pension savings. Instead, a Lump Sum Allowance of £268,275 (25% of the former £1,073,100 LTA) limits the tax-free lump sum you can take, and a Lump Sum and Death Benefit Allowance of £1,073,100 applies to lump sums taken before age 75.
Worked example — £50,000 salary, 5% contribution, 3% match, 35 to 66
A 35-year-old earning £50,000 contributing 5% of salary with a 3% employer match, starting from a £20,000 pot and assuming 4% annual growth, projects to a pension pot of approximately £314,000 at age 66. Annual breakdown:
- Gross contribution: £2,500
- Employer contribution: £1,500
- Total going into the pot: £4,000
- Tax relief at 20%: £500 (auto-added by the provider)
- Net cost to you: £2,000
So £2,000 of net cost produces £4,000 in the pension pot — a 100% gross-up thanks to the 100% match and tax relief combined. This is the strongest argument for pension saving in the UK system: it is rare to find another legal way to double your money at the point of contribution.
What this calculator does not cover
This calculator models defined contribution (money purchase) pensions only. It does not cover: defined benefit (final salary / career average) pensions, the State Pension, salary sacrifice arrangements (which also save NI), the 25% tax-free lump sum you can take from age 55/57, the carry-forward of unused annual allowance, or lifetime allowance transitional protections for those with protections in place. The exact tapered Annual Allowance, Money Purchase Annual Allowance, or interactions with other taxable income.
Growth assumption is a flat annual rate. Real pension performance will fluctuate year-to-year with markets and fund charges. The calculator's projection is illustrative, not a guarantee. Always consult an FCA-regulated financial adviser for personal pension planning.
Sources
Check GOV.UK guidance onpension tax relief, the Annual Allowance, and HMRC's relief-at-source process. Our methodology page records the model and review process.