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Net pay, relief at source and salary sacrifice explained
Your workplace pension can come out of your pay in three different ways, and they don't all leave you with the same take-home. Here's what each one does, in plain English.
The three ways
1. Net pay (before tax)
Your pension comes out of your pay before income tax is worked out. You pay tax on what's left, so you get tax relief at your own rate, automatically. National Insurance is still charged on your full pay.
2. Relief at source (after tax)
Your pension comes out after tax. Your provider then claims basic-rate tax relief (20%) from HMRC and adds it to your pot. If you choose 5%, you hand over 4% from your pay and the extra 1% arrives as tax relief. Higher-rate taxpayers can claim more through Self Assessment, which this calculator doesn't include.
3. Salary sacrifice
You give up part of your salary, and your employer pays that amount into your pension instead. Because your pay is lower, you pay less income tax, less National Insurance and (if you have one) a lower student loan repayment.
What each does to your take-home
A 5% pension on two salaries, England, Wales and Northern Ireland, 2026/27, no student loan. The amounts are what you take home each month.
| Salary | Net pay | Relief at source | Salary sacrifice |
|---|---|---|---|
| £50,000 | £3,126.63 | £3,126.63 | £3,143.30 |
| £70,000 | £4,088.12 | £4,029.78 | £4,093.95 |
At £50,000, net pay and relief at source come out identical, because you're a basic-rate taxpayer and both give you 20% relief. At £70,000, part of your pay is taxed at 40%. Net pay gives you the full 40% relief automatically, so it leaves you £58.34 a month better off than relief at source in this calculator. With relief at source you'd claim the missing 20% back through Self Assessment or by contacting HMRC.
Salary sacrifice beats both because it also saves National Insurance: £16.67 a month more at £50,000.
What to check on your payslip
- Is the income tax worked out on your pay before or after the pension? Before means net pay or salary sacrifice. After means relief at source.
- Is your gross pay lower than your contract says? That suggests salary sacrifice.
- Is the percentage taken from your whole salary or just qualifying earnings (between £6,240 and £50,270)? Your pension statement or HR team can tell you.
Try your own numbers in the calculator.
A change coming in 2029
From April 2029, only the first £2,000 a year of pension contributions made through salary sacrifice will be free of National Insurance. Anything above that will be charged National Insurance, as with other workplace pensions. Most people with typical contributions won't be affected. It doesn't change any of the 2026/27 figures on this page. GOV.UK has the details.
Common questions
What is the difference between net pay and relief at source?
With a net pay arrangement your pension comes out of your pay before income tax is worked out, so you get full tax relief straight away. With relief at source it comes out after tax, and your pension provider adds basic-rate tax relief (20%) to your pot. A higher-rate taxpayer on relief at source can claim the extra relief through Self Assessment.
Is salary sacrifice better than a normal workplace pension?
It usually leaves you with more take-home, because it also cuts your National Insurance. On £50,000 with a 5% pension, salary sacrifice leaves you with £200.00 more a year than net pay. The trade-offs are that your contractual salary is lower, which can affect things like mortgage applications, and from April 2029 only the first £2,000 a year sacrificed stays free of National Insurance.
How do I know which pension method I have?
Check your payslip. If your income tax is worked out on your pay after the pension has come off, it's a net pay arrangement or salary sacrifice. If tax is worked out on your full pay and the pension comes out afterwards, it's relief at source. Salary sacrifice shows as a lower gross salary, so ask your employer if you're unsure.
Rates checked 17 October 2026. Source: Pension tax relief (GOV.UK). See how we work these out. This is general information, not financial or tax advice.