Workers across the UK could be missing out on valuable pension tax savings because they do not fully understand how their workplace pension is set up.

According to workplace pension provider Penfold, confusion around salary sacrifice, pension tax relief, and contribution structures means many employees may be paying more tax and National Insurance than necessary.

For higher earners, failing to claim additional pension tax relief through self-assessment could mean missing out on hundreds of pounds each year.

Chris Eastwood, CEO of Penfold, said: “Most people assume their workplace pension is set up in the best possible way. Often, it isn’t. Small pension setup decisions can make a surprisingly big difference to both take-home pay and long-term savings.”

One of the most commonly missed opportunities is salary sacrifice. Under salary sacrifice, pension contributions are taken before tax and National Insurance. This reduces taxable salary, meaning employees may pay less National Insurance while increasing pension contributions in a tax-efficient way.

For example, an employee earning £40,000 who sacrifices £2,000 into their pension could reduce their National Insurance bill by around £160 per year, while their employer’s will drop by £276.”

Some employers also choose to pass their own National Insurance savings into employees’ pensions, increasing contributions further at no extra cost to the employee.

Eastwood added: “Many employees do not realise there are different ways workplace pensions can be structured. Some higher earners also assume pension tax relief happens automatically in every scheme. In many cases, they still need to claim additional relief themselves through self-assessment.”

Penfold says many employees are unaware of whether their pension uses salary sacrifice, which tax relief method their scheme applies, whether they need to claim additional higher-rate tax relief, and whether their employer shares National Insurance savings.

With more than 22 million people enrolled on workplace pensions across the UK, Penfold believes pension understanding remains low despite auto-enrolment helping millions start saving.

Eastwood continued: “People often engage with their pension rarely, so setup mistakes can go unnoticed for years. A few simple checks could make a meaningful difference to someone’s retirement savings over time.”

Penfold recommends employees check how pension contributions are deducted from pay, whether salary sacrifice is available, whether additional tax relief needs to be claimed manually, and whether employer National Insurance savings are added into pensions.

“Workplace pensions should be simple to understand,” said Eastwood. “But many employees still do not have clear visibility into how their scheme works or whether they are getting the full tax benefits available to them. When people do not understand how their pension is set up, they can miss out on savings for years without ever realising it.”