3. What you, your employer and the government pay
The amount you and your employer pay towards the pension depends on:
- what type of workplace pension scheme you’re in
- whether you’ve been automatically enrolled in a workplace pension or you’ve joined one voluntarily (‘opted in’)
You’re in a defined contribution pension scheme. Each payday:
- you put in £40
- your employer puts in £30
- you get £10 tax relief
A total of £80 goes into your pension.
Work out your contributions using the Money Advice Service’s contributions calculator. You can also use the government’s employer contribution calculator to work out how much your employer will pay in.
The government will usually add money to your workplace pension in the form of tax relief if both of the following apply:
- you pay Income Tax
- you pay into a personal pension or workplace pension
Even if you don’t pay Income Tax, you’ll still get an additional payment if your pension scheme uses ‘relief at source’ to add money to your pension pot.
If you’ve been automatically enrolled
You and your employer must pay a minimum percentage of your ‘qualifying earnings’ into your workplace pension scheme.
‘Qualifying earnings’ are calculated from either:
- the amount you earn before tax between £5,876 and £45,000 a year
- your entire salary or wages before tax
Your employer chooses how to work out your qualifying earnings.
|The minimum you pay||The minimum your employer pays||The government pays|
|0.8% of your ‘qualifying earnings’, rising over time to 4% by April 2019||1% of your ‘qualifying earnings’, rising over time to 3% by April 2019||0.2% of your ‘qualifying earnings’, rising over time to 1% by April 2019|
If your employer offers you a defined contribution pension the minimum amounts that must be paid into it could go up in April 2018 and April 2019, if parliament approves the changes. They might not increase if your employer is paying above the minimum amount already.
The minimum amounts could also be higher for you or your employer because of your pension scheme’s rules. They’re higher for most defined benefit schemes.
In other schemes, you and your employer have the option to pay in more than the legal minimum. You can pay in less - as long as your employer puts in enough to meet the legal minimum.
If you’ve voluntarily enrolled in a workplace pension
Your employer must contribute the minimum amount if you earn more than:
- £490 per month
- £113 per week
- £452 per 4 weeks
They don’t have to contribute anything if you earn less than this.
How your take-home pay changes
Joining a workplace pension scheme means that your take-home income will be reduced. But this may:
- mean you’re entitled to tax credits or an increase in the amount of tax credits you get (although you may not get this until the next tax year)
- mean you’re entitled to an income-related benefit or an increase in the amount of benefit you get
- reduce the amount of student loan repayments you need to make
Payments using salary sacrifice
You and your employer may agree to use ‘salary sacrifice’ (sometimes known as a ‘SMART’ scheme).
If you do this, you give up part of your salary and your employer pays this straight into your pension. In some cases, this will mean you and your employer pay less tax and National Insurance.
Ask your employer if they use salary sacrifice.