There are two ways a workplace pension contribution can reach your pot, and they produce different payslips and, for some people, different amounts of money. Under a NET PAY ARRANGEMENT the contribution is taken from your pay before Income Tax is worked out, so the relief is automatic and at your own highest rate. Under RELIEF AT SOURCE it is taken after tax, the scheme reclaims 20% from HMRC, and anyone paying more than basic rate has to claim the rest themselves. Which one you are in is your employer's choice, not yours, and the payslip says which.
What a net pay arrangement does to the payslip
The contribution is deducted from gross pay first, and Income Tax is then charged on what is left. On a £30,000 salary with a 5% contribution, £1,500 goes to the pension and tax is charged on £28,500 rather than £30,000: at 20% that is £300 less tax, so the £1,500 in the pot has cost £1,200 of take-home. A higher-rate taxpayer gets 40% relief the same way, with nothing to claim. The line on the payslip sits with the other deductions and the taxable-pay figure beside it is lower than the gross, which is the tell.
What National Insurance does, which is nothing
This is the part that surprises people. National Insurance is charged on GROSS pay, not on taxable pay, so a net pay arrangement does not reduce it at all: the same £30,000 pays £1,394.40 of NI whether you contribute 5% or nothing. Only a salary SACRIFICE changes that, because sacrifice reduces the salary itself before either charge is made, which is why employers offer it and why the payslip looks different again. A pension deduction that reduces your tax but not your NI is behaving exactly as it should.
Relief at source, and who loses out
Under relief at source the contribution is taken after tax and the scheme adds 20% back from HMRC, so an £80 deduction becomes £100 in the pot. A basic-rate taxpayer ends up in the same place as under net pay. A higher-rate taxpayer does not, unless they claim the other 20% through their tax return or by contacting HMRC, and a great many never do. The reverse problem exists too: a worker earning under the Personal Allowance pays no tax, so they have no relief to get under a net pay arrangement, while under relief at source they would have received the 20% top-up anyway.
Reading which one you are in
Three checks. Compare the taxable pay figure on the payslip with gross pay: if taxable pay is lower by the pension amount, it is net pay. Look at the deduction itself: under relief at source the deducted figure is the net one, so a 5% scheme deducts 4% of pay and the pot receives 5%. And ask the scheme, because the answer is on the annual statement. If the arrangement is relief at source and you pay higher-rate tax, the missing relief is worth about £250 a year for every £1,000 contributed, and it can be claimed for earlier years as well.
What this site's calculator assumes
Enter a pension percentage on any jurisdiction page and the figures are computed as a net pay arrangement: the contribution comes off before Income Tax and does not touch National Insurance, which is the commonest workplace shape. If your scheme is relief at source, your take-home for the period will be slightly lower than the figure shown and the pot will receive the top-up separately, so the money is not lost, it is arriving by another route. If your employer runs salary sacrifice, both the tax and the NI fall, and the right way to model it is to enter the reduced salary rather than a contribution.
Questions people ask about net pay arrangement pension
Is a net pay arrangement better than relief at source?
For a higher-rate taxpayer who never claims, yes, because the extra relief is automatic. For someone earning below the Personal Allowance it is worse, because there is no tax to relieve and relief at source would still have added 20%.
Does a pension contribution reduce my National Insurance?
Not under either arrangement. NI is charged on gross pay. Only salary sacrifice reduces it, because it reduces the salary itself.
How do I claim higher-rate relief under relief at source?
Through a tax return if you file one, or by contacting HMRC with the contribution figures if you do not. It can usually be claimed for earlier years too, which is worth doing if the scheme has been relief at source for a while.
Which arrangement am I in?
Compare taxable pay with gross on your payslip. If taxable pay is lower by the contribution, it is a net pay arrangement. If they are the same and the deduction is 80% of the headline percentage, it is relief at source.