Gross vs Net Pension Contributions Explained 2026/27
Published by the UK Money Calculators editorial team. Last updated for the 2026/27 tax year.
The amount you pay into a pension (net) is different from what ends up in your pot (gross). How the gap is bridged depends on whether your scheme uses relief at source or a net pay arrangement. Getting this right matters for claiming the correct tax relief and for tracking your annual allowance.
Relief at source
Relief at source is used by most personal pensions and SIPPs, and by some workplace schemes. Under this method:
- You contribute the net amount — that is, the gross contribution minus basic-rate tax (20%).
- Your pension provider claims the 20% basic-rate relief from HMRC and adds it to your pension pot.
- So a £800 net payment from you becomes £1,000 gross in your pension.
If you are a higher-rate (40%) or additional-rate (45%) taxpayer, the automatic top-up only covers the basic 20%. You have to claim the rest yourself, via Self Assessment or a PAYE code adjustment:
- Higher-rate taxpayer: entitled to an extra 20% on the gross contribution — claimed via Self Assessment.
- Additional-rate taxpayer: entitled to an extra 25% on the gross contribution — claimed via Self Assessment.
Net pay arrangement
Net pay arrangements are common in workplace pension schemes. Under this method:
- Your employer deducts your pension contribution from your pre-tax salary before calculating income tax.
- Your taxable income is reduced by the full contribution amount, so you save tax at your marginal rate automatically.
- There is no further relief to claim via Self Assessment — it has already been fully relieved through payroll.
For basic-rate taxpayers, both methods cost the same: 80p per £1 gross. For higher-rate taxpayers, net pay gives the right result automatically (60p per £1 gross). Relief at source needs a Self Assessment claim to reach the same outcome.
The net pay anomaly for low earners
Employees earning below the personal allowance (£12,570 in 2026/27) who are in a net pay scheme face a problem. Their income is below the tax threshold, so no income tax is being charged. There is nothing to save when the contribution is deducted pre-tax.
In a relief at source scheme, the provider would still claim 20% basic-rate relief from HMRC even if you pay no income tax. Under net pay, you get nothing.
The government introduced a top-up scheme to compensate low earners in net pay arrangements, but delivery has been complex. If you earn below the personal allowance and your employer uses net pay, ask your employer or pension provider about your relief entitlement.
Scottish taxpayers and relief at source
Scotland has six income tax bands, from 19% (starter rate) to 48% (top rate). But pension providers under relief at source always claim 20% from HMRC regardless of where you live.
A Scottish starter-rate (19%) taxpayer in a relief at source scheme actually gets more than their marginal rate automatically. But Scottish higher-rate (42%) or advanced-rate (45%) taxpayers must claim the extra via Self Assessment. The amount to claim is the difference between their Scottish rate and 20%.
Worked example
| Scenario | Net paid | Gross in pension | Extra to claim (SA) | Effective cost |
|---|---|---|---|---|
| Basic-rate, relief at source | £800 | £1,000 | — | £800 |
| Higher-rate, relief at source | £800 | £1,000 | £200 | £600 |
| Additional-rate, relief at source | £800 | £1,000 | £250 | £550 |
| Higher-rate, net pay | £600 | £1,000 | — | £600 |
All figures based on a £1,000 gross pension contribution. Annual allowance is always measured against the gross figure.
The calculator shows the gross contribution, the net cost after relief, and what to claim via Self Assessment for each method.
Open the calculatorFrequently asked questions
How do I know which method my pension uses?
Check your payslip. If your pension contribution appears as a deduction before your taxable pay figure, it is almost certainly a net pay arrangement. If the contribution is deducted after tax, or your taxable pay is not reduced by the pension contribution, it is likely relief at source. Your employer's HR or payroll team, or your pension provider's documentation, will confirm the method used.
How does a higher-rate taxpayer claim the extra relief?
In a relief at source scheme, the extra 20% higher-rate relief (or 25% additional-rate) is claimed via Self Assessment. On your tax return, enter the total gross pension contributions made to relief at source schemes in the tax year. HMRC calculates the additional relief owed and reduces your tax bill or issues a refund. If you do not normally complete a return, you can also ask HMRC to adjust your tax code.
What is the net pay anomaly for low earners?
The net pay anomaly affects employees who earn below the personal allowance (£12,570) and are in a net pay pension scheme. Because they pay no income tax, deducting contributions before tax gives them no benefit. Had they been in a relief at source scheme, their provider would still claim 20% basic-rate relief from HMRC. The government has introduced a top-up scheme, but it can be worth raising the issue with your employer to understand whether you are affected.
Is the annual allowance measured on gross or net contributions?
Always gross. The annual allowance — £60,000 in 2026/27 — is measured against the gross amount credited to your pension, not the net amount you paid. So if you contribute £800 net and the provider claims £200, your pension input for annual allowance purposes is £1,000. Employer contributions also count towards the annual allowance.
Official sources
- GOV.UK — Tax on your private pension contributions
- GOV.UK — Pension schemes rates and allowances
- GOV.UK — Income Tax rates and Personal Allowances
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.