Workplace pensions

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’)

Example

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.

Tax relief

The government will usually add money to your workplace pension in the form of tax relief if both of the following apply:

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 percentage of your earnings into your workplace pension scheme.

How much you pay and what counts as earnings depend on the pension scheme your employer has chosen. Ask your employer about your pension scheme rules.

In most automatic enrollment schemes, you’ll make contributions based on your total earnings between £5,876 and £45,000 a year before tax. Your total earnings include:

  • salary or wages
  • bonuses and commission
  • overtime
  • statutory sick pay
  • statutory maternity, paternity or adoption pay

Workplace pension contributions

  The minimum your employer pays You pay Total minimum contribution
Now 1% 1% 2%
From April 2018 2% 3% 5%
From April 2019 3% 5% 8%

These amounts could be higher for you or your employer because of your pension scheme rules. They’re higher for most defined benefit pension schemes.

In some schemes, your employer has the option to pay in more than the legal minimum. In these schemes, you can pay in less as long as your employer puts in enough to meet the total minimum contribution.

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.