UK Pension Types Explained — NET Pay, Relief at Source, and Salary Sacrifice
David Mohamad · 19 March 2026
There are three main ways pension contributions are handled in the UK. Each method changes when your pension is taken from your pay, which affects how much income tax, National Insurance, and student loan you owe.
Getting the method wrong in a calculator — or not knowing which method your employer uses — can give you a take-home figure that is wrong by hundreds of pounds a year.
NET Pay
With a NET pay arrangement, your pension contribution is taken from your gross salary before income tax is calculated. This means pension lowers your taxable income, so you get full tax relief straight away.
However, National Insurance is still charged on your full gross. Student loan repayments are also based on your full gross.
Who uses it: The NHS, teachers, civil service, and most public-sector defined benefit pension schemes use NET pay.
Relief at Source
With relief at source, your pension contribution is taken from your pay after tax. Your pension provider then claims back basic-rate tax (20%) from HMRC and adds it to your pension pot.
If you pay higher-rate or additional-rate tax, you need to claim the extra relief yourself through your tax return or by contacting HMRC.
Who uses it: Most private-sector auto-enrolment schemes, including NEST and many workplace pensions, use relief at source.
Salary Sacrifice
With salary sacrifice, you agree with your employer to give up part of your gross salary. Your employer puts that amount into your pension instead. Because your contractual salary is lower, both income tax and National Insurance are calculated on the reduced figure.
Student loan repayments also fall, because they are based on the lower gross. Your employer saves on NI too, which is why many employers offer salary sacrifice as an option.
Who uses it: Many larger private-sector employers offer salary sacrifice alongside or instead of relief at source. It is less common in the public sector.
Impact Comparison
This table shows which deductions are reduced under each pension method.
| NET Pay | Relief at Source | Salary Sacrifice | |
|---|---|---|---|
| Reduces taxable income | ✓ | ✗ | ✓ |
| Reduces NI | ✗ | ✗ | ✓ |
| Reduces student loan | ✗ | ✗ | ✓ |
| Reduces adjusted net income | ✓ | ✓ | ✓ |
| Tax relief automatic | ✓ | ✗ | ✓ |
| Provider reclaims basic rate | ✗ | ✓ | ✗ |
Which Method Does My Employer Use?
Check your payslip or ask your HR team. If your pension is shown as a deduction before tax is calculated, you are likely on NET pay. If pension comes out after tax, check whether your provider is adding basic-rate tax relief —that means relief at source. If your contractual salary has been reduced and your employer pays a larger pension contribution, that is salary sacrifice.
NHS staff are on NET pay. Most private-sector auto-enrolment schemes use relief at source unless salary sacrifice has been offered. When using a take-home pay calculator, make sure you select the right method —the wrong choice can shift your result by hundreds of pounds a year.
Try It
Enter your salary into the take-home pay calculator and switch between pension methods to see how each one changes your tax, NI, and take-home pay.
Related
- How UK Take-Home Pay Is Calculated — the full PAYE deduction pipeline
- Salary Sacrifice & Tax — why most calculators get salary sacrifice wrong
- Take-Home Pay Calculator — see your net salary after tax, NI, and pension