Net pension tax relief cost £53.8bn in 2024/25 — one of the largest tax reliefs the UK has
How it works, why the rate of relief rises with income, and the National Insurance reform arriving in 2029 that will, for the first time, put a limit on how much salary can be sacrificed NI-free.
Pension tax relief is not one relief but two, added together: relief from Income Tax on contributions and growth, and relief from National Insurance on employer contributions — less pension Income Tax and allowance charges, giving an estimated net £53.8bn in 2024/25, among the largest tax reliefs the UK has. The relief RATE genuinely rises with income, because contributions are relieved at whatever tax rate they would otherwise have been charged at. HMRC estimates that 57% of Income Tax relief on pension contributions went to higher-rate relief, 29% to basic-rate and 14% to additional-rate relief in 2024/25. This narrower distribution is not the split of the combined net cost. The government has announced a reform: from 2029, salary-sacrificed pension contributions above £2,000 a year will attract National Insurance for the first time.
Read this first — what else changes the meaning of the headline
- Total cost of pension tax relief
- £53.8bn
2024/25 (HMRC provisional estimate) — up from £44.9bn in 2019/20 (revised estimate).
- Of which: Income Tax relief
- £30.3bn
2024/25 provisional estimate, against £23.5bn of National Insurance relief the same year — two genuinely different reliefs added together.
- Higher/additional-rate taxpayers
- 16.5% / 2.5%
Of all taxpayers, 2023/24 — a small share of taxpayers, each receiving a higher RATE of relief per pound contributed (40%/45% vs 20%).
HMRC, Personal Incomes Statistics, and HMRC Tax relief statistics
- Salary-sacrifice NI exemption cap, from 2029
- £2,000
Currently uncapped. From 6 April 2029, NI applies above this threshold — projected to raise £4.845bn in 2029/30.
HMRC, Salary sacrifice reform for pension contributions (4 December 2025)
| Tax year | Net Income Tax relief | NIC relief | Total |
|---|---|---|---|
| 2019/20 (revised) | £23.1bn | £21.8bn | £44.9bn |
| 2020/21 (revised) | £25.4bn | £23.6bn | £49bn |
| 2021/22 (revised) | £24.9bn | £22.8bn | £47.7bn |
| 2022/23 (revised) | £25.8bn | £24.3bn | £50.1bn |
| 2023/24 (revised) | £29.2bn | £24.2bn | £53.4bn |
| 2024/25 (provisional) | £30.3bn | £23.5bn | £53.8bn |
Income Tax relief covers NET relief: relief on contributions and on investment returns, less Income Tax on pensions in payment and annual/lifetime allowance charges. Here net Income Tax relief is calculated as published combined net relief less NIC relief; rounding applies. NIC relief covers National Insurance not charged on employer pension contributions, which are outside both employer and employee NI regardless of how they are paid in.
Who it goes to
For these illustrative England, Wales and Northern Ireland rates, £1 of gross pension contribution costs a basic-rate taxpayer 80p after relief, a higher-rate taxpayer 60p, and an additional-rate taxpayer 55p — the same £1 going into the pension, a different amount forgone by the saver, and a different amount of relief granted. Scottish Income Tax bands differ; relief at source starts at 20%, including for Scottish 19% taxpayers. Extra relief may need to be claimed, and earnings and allowance limits apply.
What the distribution covers. HMRC publishes the marginal-rate split for Income Tax relief on contributions: 29% basic, 57% higher and 14% additional rate in 2024/25. This narrower measure cannot be presented as the distribution of all net pension relief or of lifetime benefits.
Who receives Income Tax relief on contributions?
2024/25 (provisional). Shares of Income Tax relief on individual and employer pension contributions by marginal relief rate. This is not the distribution of the combined net Income Tax and NIC relief total: it excludes investment-income relief, NIC relief and tax paid on pensions. Estimates are provisional and rounded.
Higher and additional-rate taxpayers who contribute via "relief at source" schemes must actively claim the extra relief above basic rate through Self Assessment or by contacting HMRC — it is not automatic the way basic-rate relief is. Multiple industry surveys report significant under-claiming, though this site has not independently verified a specific total.
The structure defers tax rather than eliminating it: money that would have been taxed as income today is instead taxed as income later, when withdrawn — the government's intention being to encourage saving now in exchange for taxing the income (mostly) later rather than not at all.
Contributions
ExemptRelieved from Income Tax (and, via salary sacrifice, from National Insurance too — see below) at the point of paying in.
Investment growth
ExemptNo Income Tax or Capital Gains Tax is charged on investment returns while money sits inside the pension wrapper.
Withdrawal
TaxedIncome Tax is charged on withdrawals at whatever rate applies when the money is taken out — except the first 25% (up to a cap), which can be taken entirely tax-free.
An ISA works the opposite way round — contributions are made from already-taxed income (Taxed), growth and withdrawals are both tax-free (Exempt-Exempt) — sometimes summarised as "TEE" against a pension's "EET". Neither is simply "better": a pension defers tax to a point where the saver's income (and tax rate) may be lower; an ISA gives certainty that nothing more will ever be owed.
An employee gives up part of their salary in exchange for an equivalent employer pension contribution. Because it is no longer "salary" at all, neither the employee nor the employer pays National Insurance on the sacrificed amount — a saving on top of the Income Tax relief every pension contribution gets, currently uncapped.
What changes from 6 April 2029
The first £2,000 sacrificed each year stays NI-free as now. Above £2,000, both employee and employer NI will apply to the sacrificed amount — ordinary non-salary-sacrifice employer contributions remain NI-exempt. Income Tax relief is unchanged.
Ordinary employer pension contributions made without salary sacrifice remain NI-exempt with no cap, as do other salary sacrifice schemes such as cycle-to-work or childcare.
HMRC’s published policy costing estimates £4.845bn in 2029/30 and £2.585bn in 2030/31. These are conditional revenue projections, not receipts already collected; the cap’s operational details require secondary legislation.
What this page cannot tell you
Real limits on what the tax relief evidence can establish:
Contribution relief is narrower than total net relief
Whether pension tax relief actually increases total saving, or mostly reshuffles saving that would have happened anyway
What it means
- What the data directly shows
- Pension tax relief cost an estimated £53.8bn in 2024/25; relief is given at the saver's marginal Income Tax rate, so higher earners receive a higher RATE of relief per pound contributed; and from 2029, salary-sacrificed pension contributions above £2,000 a year will attract National Insurance for the first time.
- What can reasonably be inferred
- The contribution-relief distribution is concentrated at higher and additional marginal rates. It does not show how much extra saving the relief caused or the lifetime tax benefit.
- What is disputed
- Whether pension tax relief is well-targeted (encouraging saving where it is most needed) or poorly targeted (subsidising saving higher earners would likely do anyway) is a live and genuinely contested policy debate.
- A political judgement, not a finding
- Whether to flatten the rate of relief (e.g. a single rate for everyone, an idea raised and dropped by successive governments) or extend the salary-sacrifice cap further is a live political choice this site does not take a position on.
- What the evidence cannot establish
- The distribution of the combined net total by income band, lifetime incidence, and how much saving is additional rather than shifted from other assets. Table 6.1 answers the narrower contribution-relief question.
Part of the pensions vertical (overview). Related: workplace pensions for the auto-enrolment contribution structure this relief applies to, and inequalities in pension wealth for who ends up holding the pension wealth this relief helps build.