Key takeaways
- Relief at source turns £80 into £100 in the pot at the basic rate. A 40% taxpayer gets the same £100, but the second £20 only arrives if they claim it.
- Net pay gives full relief immediately at your marginal rate. A £100 contribution costs a 40% taxpayer £60 of take-home pay, and there is nothing left to claim.
- An FOI answer from HMRC recorded 316,000 higher-rate claims for the 2023 to 2024 tax year, against roughly 1.1 million relief-at-source savers who could have claimed.
- Below the £12,570 Personal Allowance the two mechanisms diverge. Relief at source still adds 20%, net pay adds nothing, and HMRC is contacting around 1 million people from August 2026.
- The annual allowance caps all of it at £60,000 for the 2026 to 2027 tax year, tapering by £1 for every £2 of adjusted income above £260,000.
Two mechanisms deliver the same relief, and only one of them finishes the job
You pay 40% tax and you save into a pension. Does the tax relief arrive on its own, or do you have to go and get it?
It depends entirely on which of two mechanisms your scheme runs, and you didn't choose it. Under relief at source, you pay in from money that has already been taxed. GOV.UK puts it plainly: "your pension provider claims tax relief from the government at the basic 20% rate and adds it to your pension pot". Nothing above 20% comes through that route. Under the net pay arrangement, your employer takes the contribution out of your gross pay before Income Tax is calculated, so relief lands at your marginal rate on payday.
Two things follow, and they are the whole subject. A 40% taxpayer in a relief-at-source scheme has half their relief sitting with HMRC until they ask for it. And someone earning below the £12,570 Personal Allowance — the standard figure for the 2026 to 2027 tax year, which runs from 6 April 2026 to 5 April 2027 — gets 20% under relief at source and nothing at all under net pay.
Relief at source: £80 becomes £100, and then it stops
HMRC's guidance to scheme administrators contains the cleanest description of the mechanism anywhere in the manual: "if the relevant basic rate was 20%, and a member wants to make a £100 contribution they'll only need to pay £80 into their pension scheme. The scheme administrator reclaims £20 from HMRC and puts this into the scheme making up the pension contribution to £100."
Read that carefully. The scheme does the claiming, not you, and it claims one rate only. GOV.UK says you get it in all personal and stakeholder pensions, and in some workplace pensions.
The relief isn't instant, either. Scheme administrators recover the money from HMRC through interim claims, which may cover up to three tax months at a time, and an annual claim, which must be filed by 5 October following the end of the tax year where interim claims have already been paid. Your £80 lands in the pension straight away. The £20 arrives when HMRC pays the scheme.
Two limits sit on top. Relief is available on contributions "worth up to 100% of your annual earnings", and someone with no earnings at all can still pay in £2,880 and have it topped up. That reflects the statutory "basic amount" of £3,600 gross, which HMRC's manual describes as the floor below which relief at source is "the only method by which the member can get tax relief on the excess contribution".
Net pay: the relief is invisible because it never leaves your pay
The net pay arrangement works the other way round. It is open only to occupational schemes where every contributing employee of that employer is in it, and to public service schemes such as the Local Government Pension Scheme.
HMRC's manual: "If the contribution is £100, £100 will be deducted from the member's pay and paid into the pension scheme. As the contribution is taken from the member's pay before tax is calculated they have effectively been given full tax relief."
Nobody claims anything. There is no basic-rate top-up landing in the pot weeks later, because the money was never taxed in the first place. A 40% taxpayer paying £100 into a net pay scheme sees take-home pay fall by £60, and the relief is finished at that moment. That is the practical appeal of net pay, and it is why higher-rate savers in occupational schemes rarely think about this subject at all.
At the higher rate, the two mechanisms differ by £20 in every £100
HMRC's own worked example in the Pensions Tax Manual is worth quoting in full, because it is the shape of the whole problem:
"A member wants to make a total contribution of £1,000. The member deducts and retains £200 and pays £800 to the pension scheme. The pension scheme claims £200 from HMRC. The total contribution is £1,000. The member is a higher rate taxpayer (40%) and claims the extra £200 (40% - 20% already claimed by pension scheme) from HMRC through Self Assessment after the end of the year."
GOV.UK sets the entitlement out as a rate on a slice of income: "20% up to the amount of any income you have paid 40% tax on", and "25% up to the amount of any income you have paid 45% tax on". So the extra relief is capped by how much of your income actually fell in the higher or additional band — not by how much you contributed. In the 2026 to 2027 tax year the higher-rate band runs from £50,271 to £125,140 in England, Wales and Northern Ireland, with the additional rate above £125,140.
The chart above prices this out. It shows what £100 in the pension costs you, under each mechanism, at each rate. Four of the seven bars sit at £80, one at £100, and the two that matter most — a 40% taxpayer who claims, and one who doesn't — sit £20 apart.
One detail gets missed constantly. The extra 20% does not go into the pension. It comes back to you, as a repayment or a change to your tax code. The pot is £100 either way; what differs is your bank balance. Whether that £20 ever reaches a portfolio is a separate decision, and it is the reason the two mechanisms can look identical on a pension statement and still leave people in different places. If you are trying to work out when investment returns start to outrun your contributions, the money that never got reinvested is part of that arithmetic.
You don't pick the mechanism, and your employer picked it once
This is the part readers find hardest to believe. HMRC's June 2026 Employer Bulletin states it without qualification: "The individual cannot choose the method of tax relief for themselves. The default for all new registered pension schemes has been Relief at Source since April 2006. However, an employer can elect at the start of a new pension scheme to operate a net pay arrangement as long as that scheme meets certain conditions. Once registered, the form of tax relief is set."
The Pensions Tax Manual says the same thing from the member's side: "A member cannot choose which method of tax relief applies to their contributions; this is determined by the method the pension scheme is allowed to operate under the legislation." A scheme also can't mix the two for employees of the same employer.
So the question "which mechanism am I in?" has an answer you can look up, and no answer you can change. Relief at source has been the default for new schemes for two decades, which is why so many auto-enrolment savers are in it without knowing.
How much higher-rate relief goes unclaimed, and why the figure is soft
A Freedom of Information response obtained from HMRC by Steve Webb of LCP, reported in January 2026, gives the only concrete count in circulation. In the 2023 to 2024 tax year, "6.8 million people paid into a RAS pension, while around 16.5 per cent of all taxpayers paid the higher rate of income tax and 2.5 per cent paid the additional rate."
Scale that population up and roughly 1.1 million higher-rate and 170,000 additional-rate savers had something to claim. The recorded claims were 316,000 and 151,000. That leaves "around 807,000 higher rate taxpayers and 19,000 additional rate taxpayers that could be missing out on tax relief". Using an average contribution of £8,782 declared on tax returns, the analysis puts the unclaimed higher-rate relief at £1.42bn and the additional-rate figure at £40m, with an average of £1,756 per higher-rate saver.
The contrast inside those numbers is the interesting part. Nearly all additional-rate savers claim; under a third of higher-rate savers do. Additional-rate taxpayers almost all file a Self Assessment return already, and the pension box is on the form in front of them. Higher-rate taxpayers on PAYE often file nothing at all, so for them the claim is a separate errand rather than a field on a form they were completing anyway.
The strongest objection: the count only measures Self Assessment
The £1.42bn number deserves a hard look, and HMRC supplied the objection itself. It noted "that it was possible to claim higher rate relief through means other than the annual tax return, such as writing a letter to HMRC or requesting a tax code adjustment, which would suggest these figures may over-state the numbers affected."
That caveat has teeth. GOV.UK runs an online service for exactly this: a higher-rate taxpayer who doesn't complete a return can claim through their tax code, and HMRC undertakes to respond "within 28 working days". Every one of those claims is invisible to a count of tax returns.
HMRC's own accredited statistics hit the same wall, and say so. The notes to Table 6 of the July 2026 private pension statistics record that the relief-at-source figures cover relief claimed by schemes plus additional relief claimed through Self Assessment, and "do not consider the additional relief that members have claimed themselves by contacting HMRC by any method other than Self Assessment". Worse, "where there are Higher or Additional rate taxpayers who do not complete a Self Assessment return, the basic relief that the scheme claims on their behalf will be treated as being relieved at the Basic rate of Income Tax."
You can see the distortion in the published split for the 2024 to 2025 tax year. Of the Income Tax relief HMRC attributes to individual contributions, £3.8 billion of the £7.0 billion running through net pay arrangements is recorded at the higher rate. For relief at source it is £1.6 billion of £5.9 billion. Net pay relief can be attributed accurately, because HMRC knows the individual's income. Relief-at-source relief cannot, unless the saver filed. Across all pension contributions the headline split for that year was 29% at the basic rate, 57% at the higher rate and 14% at the additional rate — a split that quietly assumes the missing claims are basic-rate.
Webb's counter-caveat runs the other way: the estimate used an average contribution across all taxpayers, and higher earners tend to contribute more, so £1.42bn may understate the money involved. Both corrections are real. The honest position is that the number is somewhere in the low billions a year and that nobody, including HMRC, publishes an exact figure.
Below the Personal Allowance the two mechanisms pay different amounts
Now run the same contribution for someone earning under the Personal Allowance, which is £12,570 for the 2026 to 2027 tax year.
Under relief at source, the scheme claims 20% whether or not you pay any tax. GOV.UK is explicit that a provider "can claim tax relief for you at 20%" on contributions up to 80% of earnings, or £2,880 with no earnings at all. Your £80 still becomes £100.
Under net pay, relief is given at your marginal rate. If that rate is 0%, so is the relief. The £100 leaves gross pay that was never going to be taxed, so it costs the full £100. Same salary, same contribution, same pension pot — and £20 of difference in take-home pay for every £100 saved, decided by a choice the employer made when the scheme was set up.
Parliament legislated a fix, and it is landing now. HMRC's June 2026 Employer Bulletin says that "From August 2026, HMRC will be contacting around 1 million eligible individuals directly about the low earner's pension payment, previously referred to as the low earner's anomaly." Eligibility covers tax years from 2024 to 2025 onwards, for people who "earned close to the personal allowance in a tax year, typically £12,570" and contributed through a net pay scheme. The payment is made after the tax year, into a bank account, and it is itself taxable — so it equalises take-home pay rather than pension pots.
Scotland breaks the symmetry in both directions
Scottish taxpayers get a version of both problems at once, because Scotland has six bands and relief at source has one rate.
At the bottom, the anomaly runs in the saver's favour. HMRC instructs schemes that for members "liable to Income Tax at no more than the Scottish starter rate of 19%, or who pay no tax, you'll continue to claim relief at 20% for these individuals", and adds that it "does not recover the difference". A starter-rate Scottish taxpayer receives relief at a rate they never paid.
One band up it reverses. An intermediate-rate taxpayer at 21% "can claim the additional 1% relief due on some or all of their contributions above the 20% tax relief paid to you" — a claim worth 1 percentage point of the contribution. Above that, GOV.UK lists the Scottish entitlements as 22% on income taxed at 42%, 25% on income taxed at 45%, and 28% on income taxed at 48%.
The Scottish higher rate begins at £43,663 in the 2026 to 2027 tax year, against £50,271 in the rest of the UK. More Scottish savers therefore have something to claim, at a larger gap between their marginal rate and the 20% their scheme recovers.
The ceiling on all of it: 100% of earnings and a £60,000 allowance
None of this is unlimited. Relief is capped at 100% of your relevant UK earnings, and separately at the annual allowance, which GOV.UK gives as £60,000 for the current tax year. Anything above that is taxable, whichever mechanism delivered the relief.
The allowance tapers for high earners. HMRC's guidance: "For every £2 your adjusted income goes over £260,000, your annual allowance for the current tax year reduces by £1. The minimum reduced annual allowance you can have in the current tax year is £10,000." The taper doesn't bite at all if threshold income is £200,000 or less, "no matter what your adjusted income is".
For a household budgeting its pension holdings against everything else, the practical ceiling on the tax-relieved part of the portfolio is therefore £60,000 a year, falling to £10,000 for the highest earners. Relief at source and net pay change how the relief reaches you. They do not change that limit.
What these numbers cannot tell you
Every rate, band and allowance above is stated for the 2026 to 2027 UK tax year, taken from GOV.UK during August 2026. Tax thresholds move at fiscal events. HMRC's own taper guidance carries an update log recording changes to the adjusted income limit and to the minimum reduced allowance in both 2020 and 2023. A figure that is right today has a shelf life measured in months.
The unclaimed-relief estimate is not an official statistic. It is an FOI disclosure interpreted by a third party, resting on an assumption that relief-at-source savers look like taxpayers as a whole. That assumption is doing real work, and it is untested here. HMRC's published statistics have the limitation described above, so the two sources cannot be reconciled into a single number.
The comparison also only measures Income Tax. It leaves out National Insurance entirely, which is where salary sacrifice arrangements do their work and where the ranking of the two mechanisms can change. It ignores employer contributions, which dwarf employee ones in the relief statistics. And it says nothing about defined benefit schemes, where the "contribution" is a notional input amount rather than money you paid.
What would change the conclusion
Three things would move it. If HMRC published claims made through tax-code adjustments alongside Self Assessment claims, the unclaimed figure could shrink sharply — or be confirmed, which would be the more interesting result. Until then it is an estimate wearing a precise decimal point.
If the higher-rate threshold moves, the population changes with it. The FOI data covers a year in which 16.5% of taxpayers paid the higher rate. Webb's warning is that continued freezes to tax thresholds keep pulling people over that line, and every one of them in a relief-at-source scheme joins the group with something to claim.
And if relief at source were ever digitalised to the point where a scheme could claim at the member's actual marginal rate, this entire distinction would disappear. HMRC is rebuilding the relief-at-source payment service now, though it told schemes in June 2026 that the strategic service has slipped to later in 2026.
Until one of those lands, the mechanism a scheme runs stays the fact that decides whether relief finishes on payday or waits to be asked for. It appears on the annual statement, and a provider can confirm it in a sentence. It changes the arithmetic behind the multiple you are aiming at, in the same quiet way that a fee difference compounds across a working life.