Glossary · UK
What is Net Pay Arrangement (Pension)?
Workplace pension method where contributions come out of gross pay before income tax is calculated.
Full Definition
Under a Net Pay Arrangement, your pension contribution is deducted from gross salary before PAYE tax — so full tax relief is given immediately at your marginal rate (20%, 40%, 42%, 45% etc.). This is the typical method used by occupational defined benefit and many defined contribution schemes. The downside is that very low earners below the Personal Allowance (£12,570) get no relief because they pay no tax — a long-standing inequity. Since April 2024 HMRC pays a top-up direct to affected low earners to restore the 20% relief they would have received under Relief at Source.
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Disclaimer: Definitions are for guidance only. For decisions about your tax, savings, property or pension situation, always consult a qualified professional or refer to gov.uk.