Pension calculator 2026/27

How pension tax relief works

When you contribute to a pension, you receive tax relief at your marginal income tax rate. The method depends on your scheme type:

• Relief at source — contributions are taken from your net (post-tax) pay. Your pension provider automatically claims 20% basic rate relief from HMRC and adds it to your pot. Higher and additional rate taxpayers claim the extra relief through Self Assessment.
• Net pay arrangement — contributions are deducted from your gross pay before tax is calculated, so you get immediate relief at your full marginal rate. No claim needed.
• Salary sacrifice — you agree to a lower contractual salary in exchange for employer pension contributions. This saves both income tax and National Insurance (employee and employer), making it the most tax-efficient method. However, it reduces your pensionable salary for other benefits.

Annual allowance 2026/27

The annual allowance for pension contributions is £60,000 (or 100% of your earnings, whichever is lower). This covers both your own and your employer's contributions combined.

If you exceed the annual allowance, you will face a tax charge that claws back the tax relief on the excess. However, you can carry forward unused allowance from the previous three tax years. This is particularly useful if you receive a large bonus and want to make a one-off larger contribution.

Auto-enrolment minimum contributions

All eligible workers are automatically enrolled into a workplace pension. The minimum total contribution is 8% of qualifying earnings, split as:

• Employee: minimum 5% (including tax relief)
• Employer: minimum 3%

"Qualifying earnings" means earnings between £6,240 and £50,270 for 2026/27. Some employers calculate contributions on full salary (more generous), while others use the banded qualifying earnings definition.

Should you increase your pension contributions?

Increasing pension contributions is almost always tax-efficient — you receive at least 20% tax relief, and up to 62% effective relief if you are in the personal allowance taper zone (£100,000–£125,140). However, you cannot access pension funds until age 57 (rising from 55 in 2028).

Consider increasing contributions if:

• Your employer offers contribution matching (free money)
• You earn between £100,000 and £125,140 (contributions restore your personal allowance)
• You are a higher rate taxpayer and want to move income below the 40% threshold
• You have surplus monthly income and no high-interest debt

Frequently asked questions