Published by the UK Money Calculators editorial team. Last updated for the 2026/27 tax year.
Net pay pension arrangements work brilliantly for most people — contributions come off your gross salary before tax, so you get automatic relief at your full marginal rate. But for lower earners, particularly those whose income falls below the Personal Allowance, the picture changes. If you pay no income tax, you cannot benefit from income tax relief, and that means net pay schemes can leave some workers worse off than those in relief at source schemes. The government has introduced a top-up to address this — but it is worth understanding exactly how the problem arises.
In a net pay arrangement, your employer deducts your pension contribution from your gross salary before calculating income tax. If you earn £30,000 and contribute £2,000, income tax is calculated on £28,000 instead. This means you receive tax relief automatically at whatever rate you pay — 20% for basic-rate taxpayers, 40% for higher-rate taxpayers, and so on.
This is different from relief at source, where you pay the net amount (80% of the gross) and the provider claims the 20% basic rate top-up from HMRC directly.
The difficulty arises when a worker's income is below — or close to — the Personal Allowance of £12,570. Income below the Personal Allowance is not subject to income tax, so deducting a pension contribution from pre-tax pay does not actually save any tax. The contribution is still deducted, but there is no tax reduction to offset it.
A worker in a relief at source scheme in the same position benefits differently. Even if they pay no income tax, their provider still claims 20% basic rate relief from HMRC on their behalf. So they effectively get a 25% bonus on what they contributed — £800 becomes £1,000 — regardless of their tax position.
This creates an inequality: identical pension contributions can cost different amounts depending on which type of scheme an employer happens to use, even when the workers have the same earnings.
Jamie earns £15,000 and contributes £1,000 to a workplace pension.
In this case the outcome is the same — both methods cost Jamie £800 for £1,000 in the pension.
Morgan earns £10,000 — below the £12,570 Personal Allowance. Morgan contributes £1,000 to a workplace pension.
The difference here is stark: the net pay worker receives nothing back; the relief at source worker effectively gets a 25% uplift on their contribution.
HMRC introduced a top-up payment for low earners in net pay schemes, effective from the 2024/25 tax year onwards. Workers in a net pay scheme who earn below the Personal Allowance can receive a top-up from HMRC equivalent to the basic rate relief they would have received in a relief at source scheme. This is paid directly by HMRC, not through the pension provider.
The rules around eligibility, how the payment is made and how to receive it have specific conditions. See GOV.UK for current details and how to check whether you qualify.
Employers typically cannot offer both scheme types for the same employee. Switching usually requires changing employers or pension provider. If you are in a net pay scheme and your income is below or near the Personal Allowance, it is worth understanding whether you are affected — particularly if your hours vary or you work part-time.
If you contribute to a personal pension or SIPP alongside an employer scheme, you can choose a relief at source arrangement there, which would give you the 20% top-up regardless of your earnings.
The calculator shows how net pay, relief at source and salary sacrifice compare for your income and contribution level.
Open the calculatorYou may be affected if your gross earnings for the year are below £12,570 (the Personal Allowance for 2026/27) and your employer uses a net pay pension arrangement. This is common for part-time workers, seasonal workers and those who work reduced hours. If your income is above the Personal Allowance but you are a basic-rate taxpayer, your outcome under net pay and relief at source is generally the same.
Employers generally cannot offer both types of scheme simultaneously, and switching is not usually straightforward. However, if you contribute to a personal pension or SIPP independently, choosing a relief at source provider for those contributions gives you the 20% top-up regardless of your tax position. If you think you are missing out through your employer's scheme, it is worth raising with HR or checking GOV.UK to see if you qualify for HMRC's top-up payment instead.
From the 2024/25 tax year, HMRC introduced a mechanism to top up low earners in net pay schemes so they receive relief equivalent to what they would have received in a relief at source scheme. The payment is made directly to the individual — not added to the pension. The rules around how to claim and who qualifies are set out on GOV.UK and may be updated, so always check the current guidance.
Yes. Many auto-enrolment schemes — especially large workplace master trusts — use net pay arrangements. Whether you are affected depends on the specific scheme your employer uses. NEST, for example, uses relief at source, which means low earners in NEST automatically receive the 20% top-up. Other common workplace schemes may use net pay. Your employer or pension provider can confirm which method applies to your scheme.
Scottish taxpayers have different income tax rates and bands. The starter rate for Scottish taxpayers is 19% on income between £12,570 and £16,537. In a net pay scheme, Scottish taxpayers receive their actual marginal rate of relief automatically — which may be 19% rather than 20%. In a relief at source scheme, the provider always claims 20% from HMRC, potentially giving Scottish starter-rate taxpayers slightly more relief than they technically owe. The calculator handles Scottish rates separately.
Disclaimer: This guide is for general information only and does not constitute financial or tax advice. Pension tax rules are complex and individual circumstances vary. Figures shown are for England, Wales and Northern Ireland unless stated. Consult a qualified financial adviser or HMRC for personalised guidance.