Help Centre for Employers

What’s the difference between net pay and relief at source?

There are two ways pension schemes can collect the tax relief that savers benefit from when contributing to a pension; net pay and relief at source.

NOW: Pensions operates a net pay arrangement and this means the pension contributions are collected before income tax. This means for taxpayers, full tax relief at the highest rate is automatic and no income tax is paid on the money being contributed to a pension.

The alternative system is called relief at source. Here, employers take 80% of an individual’s pension contribution from their take home pay, i.e. after income tax has been deducted. The tax relief is then reclaimed from HMRC by the pension scheme, who send in a monthly request and get the cash back about six weeks later. HMRC only send back the basic rate of tax, namely 20%.

Where an employee in a scheme operating relief at source is a higher or additional rate taxpayer they can claim back the rest of the tax relief themselves from HMRC either by writing to them separately, or through their annual self-assessment tax return.

In a net pay arrangement, employees that don’t pay tax, do not get tax relief on their pension contributions from the government.

NOW: Pensions has announced that it will top up non taxpayers’ pension pots for the 2015/16 tax year. For more info click here.

NOW: Pensions is supportive, easy for our employees to understand and uncomplicated in terms of its implementation. Its structured approach removes the complicated investment choices & makes auto-enrolment a straightforward and simple process. — Mark Manaton, Managing Director, Blue Arrow Group
I've known ATP for many years and have enormous respect for the effectiveness of their investment strategy. I'm convinced that NOW: Pensions can become a major player in the UK and look forward to being a part of that success. — Chris Daykin, the former Government Actuary
I firmly believe in NOW: Pensions' principle that everyone deserves the right to a better retirement. I look forward to being part of the team which aims to achieve this in the UK. — Win Robbins, former Head of European Fixed Income Barclays Global Investors
I am excited to be joining such a distinguished Board of Trustees, over-seeing a modern, transparent, cost efficient and high-performing pension fund. — Win Robbins, former Head of European Fixed Income Barclays Global Investors
We decided to appoint NOW: Pensions because of the simplicity and robustness of its scheme. The NOW: Pensions product is both cost effective and straightforward to implement... — Mark Roberts, Managing Director at gap personnel