Under a net pay arrangement your contribution comes out of your pay before income tax, so you get relief at your own rate straight away and nothing has to be claimed. Under relief at source it comes out after tax, the scheme reclaims 20% from HMRC and adds it to your pot, and anyone paying above the basic rate has to claim the rest themselves. Your payslip tells you which one you are on.
How to tell which one you are on
Compare the pension line on your payslip with your taxable pay. Under a net pay arrangement the contribution has already been taken off before income tax is worked out, so your taxable pay is lower than your gross pay by the amount of the contribution.
Under relief at source the contribution is taken after tax, so your taxable pay is your full gross pay and the deduction sits further down the payslip. The amount deducted is also smaller than the headline percentage, because it is the net share: the scheme collects 20% less and reclaims that part from HMRC.
If the payslip does not make it clear, the scheme's own documents will. The two are sometimes called "net pay" and "relief at source" on a pension statement, which is confusing, because it is the net pay arrangement that takes the gross contribution and relief at source that takes the net one.
How a net pay arrangement works
Your employer deducts the whole contribution from your pay before applying your tax code. The pay that income tax is charged on is therefore lower, and you have had relief at whatever rate that slice of pay would have been taxed at, without claiming anything.
Relief comes at the rate the pay would have been taxed at, slice by slice, so a higher-rate taxpayer gets 40% on the part of the contribution that comes out of pay taxed at 40%, and an additional-rate taxpayer 45% on the part taxed at 45%. A contribution that straddles a threshold gets relief at both rates. Either way there is nothing to reclaim, which is the arrangement's main practical difference.
National Insurance is not reduced. The contribution comes off before tax and after National Insurance, so a net pay arrangement saves income tax and nothing else.
How relief at source works
Your employer deducts the net contribution from your pay after income tax and National Insurance. The scheme then claims the basic-rate share from HMRC and pays it into your pot, so the pot receives the full gross contribution even though your pay only fell by part of it.
On £35,000 a year with a 5% contribution, the gross contribution is £1,750 and the amount taken from your pay is £1,400. The difference is the relief the scheme reclaims.
If you pay tax above the basic rate, the rest of your relief is not automatic. You claim it through a Self Assessment return or by contacting HMRC, and it reaches you as a change to your tax code or as a repayment rather than as money in the pension. On £60,000 a year, a 5% contribution of £3,000 carries a claim worth the difference between 40% and 20% of that amount.
Who ends up better off under each
A basic-rate taxpayer ends up in exactly the same place either way, and the arithmetic says so rather than approximately so. On £35,000 a year with a 5% contribution, a net pay arrangement leaves £27,320.12 of take-home pay and relief at source leaves £27,320.12, and both put £1,750 into the pension. One gives the relief by taxing less; the other gives it by paying less out of your pay and having HMRC make up the difference.
Someone earning less than the Personal Allowance of £12,570 is not in the same position. Under a net pay arrangement there is no income tax to relieve, so the contribution costs its full amount out of pay. Under relief at source the scheme still reclaims 20% from HMRC, so the same contribution costs less. This is a known difference between the two methods rather than an error in either, and it has a name: the net pay anomaly.
HMRC now makes a top-up payment to close part of it. The measure places a duty on HMRC to make top-up payments to individuals who save into an occupational pension under a net pay arrangement where their total taxable income is below the Personal Allowance, for tax years from 2024 to 2025 onwards. It reaches you directly rather than going into the pension, and it arrives after the end of the tax year rather than through your payslip, so a net pay payslip still shows the full contribution coming off your pay.
Someone paying above the basic rate is better off under a net pay arrangement only in the sense that nothing has to be claimed. Under relief at source the same relief is available, but it is available to people who ask for it.
Why Scotland complicates relief at source
Relief at source is given at the relevant basic rate for where the member lives. For 2026/27 that is 20% for Scottish taxpayers as well as for the rest of the UK, because Scotland's basic rate is the same figure.
Scotland's lowest rate is not its basic rate. A Scottish taxpayer whose income falls in the starter band pays 19%, and relief at source still gives 20%, so relief exceeds the tax paid on that slice and is not clawed back.
Above the basic rate the extra relief has to be claimed against the Scottish rates: 21% in the intermediate band, 42% in the higher band, and more above that. A Scottish taxpayer in the intermediate band therefore has a claim to make where an equivalent taxpayer elsewhere in the UK does not.
What neither method does
Neither reduces your National Insurance. Only salary sacrifice does that, because it changes the pay itself rather than what is deducted from it.
Neither changes your student loan repayment either, for the same reason: the repayment is worked out on earnings, which is a figure struck before either of these deductions.
Both reduce adjusted net income by the gross contribution, which matters at the point where the Personal Allowance tapers and for any charge measured against that figure.
The limits that apply either way
Tax relief on personal contributions is limited to your relevant UK earnings for the year, with a floor for people with little or no earnings, and there is an annual allowance for the total going into your pensions from all sources.
Those limits are the same whichever collection method your scheme uses. What differs is only how and when the relief reaches you.
Can I choose which one my scheme uses?
No. The method is a feature of the scheme, chosen by the employer and the provider, and it applies to everyone in it. What you can do is know which one you are on, because that decides whether there is relief sitting unclaimed.
If you pay above the basic rate and your scheme uses relief at source, the claim is yours to make and it is not made for you.