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workplace pension tax relief

Workplace pension
tax relief

Get a boost from the government

A reward for saving

To reward you for saving for the future, you get a tax boost when you pay into your pension.

But how much workplace pension contributions you get depends on how your employer pays your pension contributions.

Do they pay them before deducting tax and National Insurance from your salary – or after?

Paying before you deduct tax and NI is called salary sacrifice but your employer can pay after deducting tax and NI which is different.

What is Salary Sacrifice?

Many workplace pensions use ‘Salary Sacrifice' (sometimes called ‘Salary Exchange’, ‘Salary Conversion’ or ‘SMART’). It’s one of the most tax-efficient ways to pay into a pension.

In short, it means you give up (or ‘sacrifice’) some of your monthly earnings and your employer puts it towards something else - in this case, your pension.

The money goes straight into your pension before any deductions for Income Tax and National Insurance. This means you save both tax and National Insurance on your contributions so they could cost less than you think.

Important points to consider

There may be knock-on effects when using Salary Sacrifice. Since it reduces your earnings, you might find that you no longer qualify for Statutory Maternity Pay, for example. It could also affect things like mortgage applications, student loans and state benefit entitlements.

Make sure you (download and) read our Salary Sacrifice Factsheet to check you’re happy with how it works.

If you think you’ll be adversely affected you should seek personal financial advice.

Salary Sacrifice Factsheet

Make sure you (download and) read our Salary Sacrifice Factsheet to check you’re happy with how it works.

If you think you’ll be adversely affected you should seek personal financial advice.

Download the factsheet

Workplace pension contributions from your net pay

If your employer doesn’t use Salary Sacrifice, then your pension contributions will come from your net pay. This means that Income Tax and National Insurance have already been deducted from your salary.

In this case, we’ll reclaim basic-rate tax relief from HMRC automatically and add it to your pension. If you pay a higher rate of tax, you would need to claim back any further tax relief from HMRC yourself. You don’t make any National Insurance savings using this method.

Which one are you?

You can find out whether your pension is paid via salary sacrifice or net pay by asking your HR team or checking your pay slip.

Tax rules can change and any benefits depend on your circumstances.

Find out more about tax relief

Guidance, help and advice

Guidance from MoneyHelper

MoneyHelper provides impartial guidance on a range of pensions and retirement topics.

It’s government-backed and free to use. However it won’t give you personalised recommendations.

More about MoneyHelper

Have a question?

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Call us on 0117 314 1795

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Alternatively, you can email us.

Retirement Advice from HL

Retirement is a time when you may feel unsure about what to do with your money and need help to make decisions. Our financial advisers can work with you to:

  • Plan your personal budget and retirement income strategy
  • Make sure your investments match your goals
  • Give pension advice, including when and how to take them

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