Salary Sacrifice vs Relief at Source 2026/27
Written by James Whitfield · Updated August 2026 · Checked against 2026/27 HMRC rates.
Pension tax relief comes in three forms: salary sacrifice, relief at source (RaS) and net pay arrangement (NPA). They are not equivalent. Salary sacrifice is the only one that also saves National Insurance.4 That makes it the most efficient route for employed people with access to a scheme. This guide explains all three methods with exact numbers.
- All three give income tax relief; only salary sacrifice also saves employee and employer NI.3
- On a £3,000 basic-rate contribution, sacrifice costs £2,160 vs £2,400 under relief at source — £240 a year less.3
- Under relief at source, higher-rate taxpayers must claim the extra relief through Self Assessment.1
- Net pay gives automatic full relief but, like relief at source, saves no NI.1
- No employer scheme? A SIPP under relief at source is the fallback — and ask HR to set sacrifice up.2
The three methods side by side
| Feature | Salary Sacrifice | Relief at Source | Net Pay Arrangement |
|---|---|---|---|
| Reduces gross pay? | Yes | No | No |
| Saves employee NI? | Yes | No | No |
| Saves employer NI? | Yes (15%) | No | No |
| Income tax relief | At marginal rate | 20% automatic; claim extra via SA | At full marginal rate automatic |
| Who offers it? | Employer scheme only | Most personal pensions, SIPPs, Nest | Many workplace DC schemes |
| Good for non-taxpayers? | No (no tax to save) | Yes (free 20% top-up) | Complex (NPA top-up from 2024) |
How relief at source works
Under relief at source, you contribute from net pay. Your pension provider automatically claims 20% basic-rate tax from HMRC and adds it to your pension. For every 80p you contribute, £1 lands in the pension. If you are a higher-rate taxpayer, you must claim the additional 20% or 25% (Scotland) through Self Assessment — it does not happen automatically. NI is not affected. You pay full NI on your entire gross salary before any pension relief.
Example: Basic-rate taxpayer contributes £240/month (net). Provider claims 20% top-up: pension receives £300. Cost: £240/month. But NI is charged on the full salary including the pension contribution equivalent. Under salary sacrifice, gross pay would be lower and 8% NI would also be saved on the £300.
The NI saving gap, exact numbers
For a basic-rate taxpayer with a £3,000 annual pension contribution, the difference is the NI:3
| Relief at source — net cost (20% tax relief only) | £2,400 |
| Salary sacrifice — net cost (20% tax + 8% NI)3 | £2,160 |
| Annual saving from choosing sacrifice | £240 |
Over 20 years that's £4,800 in cumulative extra cost under relief at source for the identical pension contribution.
For a higher-rate taxpayer who makes the Self Assessment claim: both methods save 40% income tax. The difference is NI: 2% above the UEL = £60 per year on a £3,000 contribution. The gap is smaller at higher incomes, but salary sacrifice still comes out ahead.
Net pay arrangement: how it differs from both
Under a net pay arrangement, your employer deducts pension contributions from gross pay before income tax is applied. You get full marginal-rate relief automatically. No Self Assessment needed. But unlike salary sacrifice, it doesn't change your contractual gross. NI is still calculated on the full amount before the pension deduction. The NI disadvantage is the same as for relief at source.
NPA is generally better than RaS for higher-rate taxpayers who can't get salary sacrifice. It removes the risk of forgetting to claim extra relief via Self Assessment. Non-taxpayers can be worse off under NPA since they get no income tax relief, whereas RaS gives them a free 20% top-up from HMRC even on zero tax paid.
The government introduced a top-up mechanism for low earners in NPA schemes from 2024/25 to address this. But administration is complex and claims-based.
When salary sacrifice is not an option
Salary sacrifice requires your employer to offer it and to formally amend your employment contract. Self-employed people, directors of their own limited companies and employees whose employers don't run a scheme cannot use salary sacrifice for pension contributions. In these cases:
- Use a SIPP under relief at source and claim higher-rate relief via Self Assessment (if applicable).
- If your employer offers NPA, this is preferable to RaS for higher-rate taxpayers because relief is automatic.
- Ask your employer to introduce salary sacrifice, the employer also saves 15% NI, which is a compelling business case. Many small employers set up schemes after being asked by an informed employee.
Frequently asked questions
Which is better, salary sacrifice or relief at source?
For an employee with access to a scheme, salary sacrifice — it saves National Insurance as well as income tax, which relief at source doesn't. On a £3,000 basic-rate contribution that's about £240 a year cheaper. Relief at source only wins if you have no employer scheme, or you're a non-taxpayer (where the automatic 20% top-up is valuable).
How do I know which method my pension uses?
Check your payslip and scheme paperwork. If your gross pay is reduced by the contribution, it's salary sacrifice. If the deduction comes before tax but your gross stays the same, it's a net pay arrangement. If you pay from take-home and the provider adds 20%, it's relief at source. Payroll or your scheme administrator can confirm.
Do higher-rate taxpayers need to claim anything back?
Under relief at source, yes — only 20% is added automatically, so you claim the extra 20% (25% for Scottish higher/advanced payers) through Self Assessment or by contacting HMRC. Under salary sacrifice and net pay, full relief is given automatically, so there's nothing to reclaim.
Can I use relief at source and salary sacrifice at the same time?
Yes. Many people sacrifice through their workplace scheme and also pay into a personal pension or SIPP under relief at source. The workplace sacrifice saves NI; the SIPP contributions still get income tax relief. Just keep total pension inputs within the £60,000 annual allowance.
Is net pay or relief at source better if I can't get salary sacrifice?
For a taxpayer, net pay is usually more convenient because full marginal relief is automatic — no Self Assessment claim to remember. For a non-taxpayer, relief at source is better because it hands you a 20% government top-up even though you pay no tax. Neither saves NI.
Compare your options
Use our pension salary sacrifice calculator to model the exact saving at your salary and contribution level. See also: pension salary sacrifice guide, higher-rate taxpayer guide, how salary sacrifice works.
Sources & references
Every headline figure in this guide is checked against the official HMRC and GOV.UK pages below and reflects the confirmed 2026/27 tax year. Each link opens the relevant official page in a new tab.
- Tax on your private pension contributions ↗ https://www.gov.uk/tax-on-your-private-pension
- Workplace pensions ↗ https://www.gov.uk/workplace-pensions
- National Insurance rates and categories ↗ https://www.gov.uk/national-insurance-rates-letters
- Salary sacrifice and the effects on PAYE (HMRC) ↗ https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye