How £25,000 in a pension can cost £10,000 after tax relief
Illustrative example: Joe is a fictional software engineer living in Haywards Heath. This worked example explains the tax calculation; it is not a client testimonial or a claim that Digivolve achieved this outcome for a real person.
Joe earns £125,000 a year from employment. He has savings available and wants to understand the cost of paying £20,000 into his pension. We assume 2026/27 England income tax rates, a relief-at-source pension, sufficient pension allowances, and no other income, existing pension contributions or tax adjustments.
First: £20,000 from savings becomes £25,000 in his pension
Joe pays £20,000 upfront. His pension provider claims £5,000 from HMRC and adds it to his pension. His pension receives £25,000 in total.
Next: Joe can claim £10,000 of personal tax savings
The gross £25,000 contribution reduces Joe’s adjusted net income from £125,000 to £100,000. His Personal Allowance increases from £70 to £12,570. That restores £12,500 of tax-free income, saving £5,000 in income tax.
His basic-rate band also increases from £37,700 to £62,700. This means £25,000 more of his taxable income falls into the 20% band instead of the 40% band, saving another £5,000.
£5,000 allowance saving + £5,000 tax-band saving = £10,000 total personal tax saving. The £10,000 is the total of those two savings. It is not a third saving.
Finally: £25,000 in the pension at a £10,000 final cost
Joe’s original payment is £20,000. After he claims the £10,000 personal tax saving, his final cost is £10,000. His pension still holds the full £25,000 contribution, before investment movements or charges.
The personal tax saving may be a refund, a tax-code adjustment or a reduction in tax still owed. It does not automatically go into his pension. Joe needs the full £20,000 available upfront.
The £5,000 pension top-up plus £10,000 personal tax saving gives £15,000 of total relief on the £25,000 gross contribution: 60% effective tax relief. This is tax relief, not investment growth or a guaranteed return.
What if Joe can only pay £10,000 upfront?
Under the same assumptions, £10,000 from savings becomes £12,500 in his pension. His allowance saving is £2,500 and his tax-band saving is £2,500. Together, those produce £5,000 of personal tax savings, leaving a £5,000 final cost.
Try your own figures
Use our employee pension tax relief calculator to see the payment, top-up, personal tax savings and final cost for your own example. The explanation underneath updates with your figures.
Your result can differ from Joe’s. For example, if your Personal Allowance does not increase, there is no allowance-restoration saving. The calculator should show that rather than assume everyone gets 60% relief.
Check your position before paying
Existing contributions, employer contributions, other income and pension allowance limits can change the result. The usual £60,000 annual allowance covers all pension schemes and may be lower in some circumstances. Pension money is normally inaccessible until the permitted pension-access age, investments can fall in value and withdrawals may be taxable. This example is not a recommendation to select or invest in a particular pension.
Speak to Digivolve’s accountants in Haywards Heath for help checking your tax calculation and claiming the relief you are entitled to.
Sources checked 8 September 2026: HMRC income tax rates, adjusted net income, pension tax relief and annual allowance.