Net pay arrangement

A net pay arrangement is a way of giving tax relief on workplace pension contributions. Your employer deducts the contribution from your gross pay before running PAYE, so Income Tax is charged only on what is left. HMRC's Pensions Tax Manual (PTM044230) says this gives full relief at your marginal tax rate with no claim needed. Only occupational and public service schemes can use it, and all contributing employees of the same employer in that scheme must use it.

Net pay relieves Income Tax only. National Insurance is still charged on your pay before the contribution, which is the main difference from salary sacrifice.

Example: on a £40,000 salary in 2026/27, a £2,000 contribution cuts taxable pay to £38,000. Income Tax falls from £5,486 to £5,086, a £400 saving, while National Insurance stays at £2,194.40. The full £2,000 goes into the pension and your take-home pay falls by £1,600 (RightSums engine, 27 September 2026).

People with income below the £12,570 Personal Allowance used to get no relief under net pay. From the 2024/25 tax year HMRC pays them a low earner's pension payment. According to HMRC's pension schemes newsletter 184 (August 2026), payments for 2024/25 contributions begin in the coming months and roll out into early 2027, and HMRC will contact eligible people by post or through their personal tax account.

Test the effect in the UK take-home pay calculator, and read how pension tax relief works.