A higher-rate taxpayer wants £10,000 in their pension. Under a Net Pay scheme the contribution comes out of salary before tax, so at a 40 percent marginal rate the real cost to them is just £6,000, with the relief applied automatically through payroll. Under Relief at Source the same person pays £8,000 from their post-tax money, the provider reclaims the basic 20 percent and tops the pot up to £10,000, leaving them £8,000 out of pocket at first. They then reclaim the extra higher-rate relief through Self Assessment, a refund of £2,000, which brings the true cost back down to £6,000. Both routes cost the same in the end and both deposit £10,000, but Net Pay is automatic while Relief at Source needs a tax return to capture the higher-rate slice.
How it is calculated
The tool compares the real cost of getting a set gross amount into a pension under the two relief mechanisms. For Net Pay it multiplies the contribution by one minus your marginal rate, because the money leaves your pay before tax and relief is therefore immediate and complete. For Relief at Source it assumes you pay 80 percent of the gross from taxed income while the provider reclaims the basic 20 percent, then it adds back a Self Assessment refund equal to your marginal rate above 20 percent, which is only available to higher and additional-rate taxpayers. Both deliver the same gross into the pension and, for a higher-rate payer, the same net cost. The practical difference is timing and effort: Net Pay is hands-off, whereas Relief at Source leaves higher-rate relief unclaimed unless you file a return. Low earners below the personal allowance can be better off under Relief at Source, which is why a government top-up was introduced for Net Pay schemes.
Frequently asked questions
Why does Net Pay help low earners more?
Below the Personal Allowance, you have no Income Tax to relieve under RAS, so the provider claims 20 percent on contributions, but you would have paid 0 percent anyway. Net Pay structure means you get the deduction with no tax to claim back. Government introduced a top-up for low earners on Net Pay schemes from 2024-25 to fix this.
What is the annual allowance for pension contributions in the UK?
For 2024-25 the annual allowance is £60,000 or 100 percent of your earnings, whichever is lower. Contributions above this limit are subject to a tax charge that claws back the relief. Unused allowance can be carried forward up to three years if you were a member of a registered pension scheme in those years.
Do I need to file a Self Assessment return to claim higher-rate pension relief under RAS?
Yes. Under Relief at Source your provider automatically reclaims basic-rate tax from HMRC, but any relief above 20 percent must be claimed through a Self Assessment tax return or by contacting HMRC directly. If you do not file a return, you will miss the higher-rate slice of your relief. It is worth checking whether your employer operates a Net Pay scheme instead, which gives you full relief automatically through payroll.
Can additional-rate taxpayers claim pension relief at 45 percent?
Yes. If your marginal rate is 45 percent you are entitled to relief at that rate on pension contributions. Under Relief at Source the provider claims 20 percent, and you claim the remaining 25 percent through Self Assessment. Under a Net Pay scheme the full 45 percent relief is applied automatically before tax is calculated on your salary.