Pension contributions are the single most powerful tax-saving tool for UK high earners. Here is how to claim 40%, 45%, or effective 60% relief.
When you contribute to a pension, HMRC gives you tax relief at your marginal rate. The mechanics depend on whether you make personal contributions or use salary sacrifice:
Personal contributions: Your pension provider automatically claims 20% basic rate relief from HMRC. A £1,000 contribution only costs you £800. If you pay higher (40%) or additional (45%) rate tax, you claim the extra relief through your self-assessment return or by asking HMRC to adjust your tax code.
Salary sacrifice: Your employer reduces your gross salary and pays the equivalent into your pension. No tax or National Insurance is charged on the sacrificed amount. This is usually more efficient because you also save on NI.
The amount of relief you receive depends on your income:
Basic rate (20%): Pay £800, get £1,000 in your pension. Higher rate (40%): Pay £600, get £1,000 in your pension. Additional rate (45%): Pay £550, get £1,000 in your pension. 60% trap band (£100k–£125k): Pay £400, get £1,000 in your pension — because contributions restore your personal allowance.
You can contribute up to £60,000 per year to pensions (across all your pension schemes combined, including employer contributions). This is the annual allowance for 2025/26.
If you earn less than £60,000, your annual allowance is capped at 100% of your earnings. If you earn over £260,000, the annual allowance tapers down to a minimum of £10,000.
Exceeding the annual allowance triggers an annual allowance charge at your marginal tax rate, which effectively removes the tax benefit on the excess.
If you did not use your full £60,000 allowance in any of the previous three tax years, you can carry the unused amount forward. This allows a larger one-off contribution — potentially up to £180,000 in a single year if you have three full years of unused allowance.
To use carry forward, you must have been a member of a registered pension scheme in the years you are carrying forward from. Check your pension provider statements to see how much allowance you have used each year.
For higher and additional rate taxpayers, salary sacrifice is usually more beneficial than personal contributions:
Salary sacrifice saves both income tax and National Insurance (employee NI at 8% on earnings between £12,570 and £50,270, and 2% above). Personal contributions only save income tax — you still pay NI on your full salary.
Some employers also pass on their own NI saving (13.8%) to your pension, making sacrifice even more valuable. Ask your HR department if this applies.
The main downside: salary sacrifice contractually reduces your gross salary, which can affect mortgage applications, statutory pay calculations, and life insurance based on salary multiples.
You earn £120,000 and contribute £20,000 via salary sacrifice. Your gross salary drops to £100,000 — fully restoring your personal allowance.
Income tax saved: £8,000 (40% on £20k). Personal allowance restored: £4,000 (20% on £10k taper recovered). NI saved: £400 (2% on £20k). Total tax saving: £12,400 on a £20,000 contribution. Effective relief rate: 62%.
If you make personal contributions (not salary sacrifice), your provider claims 20% automatically. To claim the remaining relief at 40% or 45%:
Option 1: Include pension contributions on your self-assessment tax return (SA100 form, box in the tax reliefs section). HMRC calculates the extra relief and either reduces your next payment or sends a refund.
Option 2: Call HMRC (0300 200 3300) and ask them to adjust your tax code. This spreads the relief across your monthly pay, so you see the benefit immediately rather than waiting until you file.