Workplace pensions and auto-enrolment
Every employer must enrol eligible staff into a pension and pay into it. Here is who qualifies, what the minimums are and how the tax relief actually works.
Who gets auto-enrolled
Workers aged 22 to State Pension age earning over £10,000 a year must be enrolled automatically. Others can usually opt in – and anyone earning over £6,240 who opts in is entitled to employer contributions too. You can opt out, but a full opt-out within a month of enrolment is the only way to get contributions refunded; employers re-enrol everyone roughly every three years.
The minimum contributions
The legal minimum is 8 percent of qualifying earnings – the slice between £6,240 and £50,270 – with at least 3 percent from the employer. Many schemes instead use full basic salary, which produces higher contributions. On a £30,000 salary, the qualifying-earnings minimum works out at about £1,900.80 a year in total contributions; the pension contribution calculator does this for any salary and percentage.
How tax relief works
- Net pay arrangement – contributions come out before tax, so relief is automatic at your highest rate.
- Relief at source – contributions come from net pay; the provider adds 20 percent and higher-rate taxpayers reclaim the rest via self assessment.
- Salary sacrifice – you give up salary and the employer pays it in instead, saving employee NI (8 percent) and employer NI (15 percent) as well as tax. See the NI guide.