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, every £80 you contribute becomes £100 in your pension. If you pay 40%, every £60 becomes £100. If you pay 45%, every £55 becomes £100. 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 | You contribute | 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 — two ways to deliver the same relief
The mechanics differ but the total relief is 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.
The Annual Allowance — the £60,000 cap
For 2026/27 the 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 allowance trigger an Annual Allowance Charge, taxed at your marginal rate on the excess. 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 marginal rate is approximated using the England/Wales/NI bands — Scottish taxpayers should treat the relief figure as an approximation.
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.