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Automatic Enrolment

How much do I and my employer have to pay?

The Government has set minimum levels of contributions that must be paid to the workplace pension scheme by you and/or your employer. Your employer will tell you how much you will have to pay. (Below we've set out how the minimum contribution is calculated under the different options).

The minimum total contributions under automatic enrolment have been set down by the Government and are set to increase between now and April 2019.

Your employer must pay some of the minimum total contribution. If the employer doesn't pay all of the minimum total contribution, you will need to make up some of the difference. The Government will also pay into your pension pot by giving you tax relief on your contributions However, even if you don’t pay Income Tax, you’ll still get tax relief if your pension scheme uses relief at source to add tax relief to your pension pot.

The minimum total contribution to the scheme is usually based on your ‘qualifying earnings’. These are your earnings from employment, before income tax and National Insurance contributions are deducted, that fall between a lower and upper earnings limit that are set by the Government. You can read more about this here. Earnings from employment can include your wages or salary, commission, bonuses, to name a few. 

If your employer decides to pay only the minimum amount, the minimum total contribution, as a percentage of your qualifying earnings is:

Your employer pays: You pay: The Government adds tax relief of: Total contribution
1.0% of your qualifying earnings until 6 April 2018 rising to 2.0% until 6 April 2019 then rising to 3.0% 0.8% of your qualifying earnings until 6 April 2018 rising to 2.4% until 6 April 2019 then rising to 4.0% 0.2% of your qualifying earnings until 6 April 2018 rising to 0.6% until 6 April 2019 then rising to 1.0% 2.0% of your qualifying earnings until 6 April 2018 rising to 5.0% until 6 April 2019 then rising to 8.0%

For more detail, please see example 1

Using pensionable pay

Your employer may choose to base contributions on your pensionable pay, rather than qualifying earnings. This is most likely to be the case where your employer provided a workplace pension scheme before the introduction of automatic enrolment. Pensionable pay is defined by the rules of the pension scheme. Typically, pensionable pay is basic salary, not including, elements of your earnings such as commission, bonuses and overtime

If your employer decides to use pensionable pay rather than qualifying earnings, your employer must satisfy one of three sets of alternative requirements for their pension scheme to qualify for use under automatic enrolment and in order to calculate the minimum total contributions payable. The three sets are:

Set One

Contributions based on basic pay only

Your employer pays: You pay: The Government adds tax relief of: Total contribution
2.0% of your basic pay until 6 April 2018 rising to 3.0% until 6 April 2019 then rising to 4.0% 0.8% of your basic pay until 6 April 2018 rising to 2.4% until 6 April 2019 then rising to 4.0% 0.2% of your basic pay until 6 April 2018 rising to 0.6% until 6 April 2019 then rising to 1.0% 3.0% of your basic pay until 6 April 2018 rising to 6.0% until 6 April 2019 then rising to 9.0%

 

Set Two

Contributions based on basic pay only where basic pay for all scheme members added together equals at least 85% of their total earnings before tax.

Your employer pays: You pay: The Government adds tax relief of: Total contribution
1.0% of your basic pay until 6 April 2018 rising to 2.0% until 6 April 2019 then rising to 3.0% 0.8% of your basic pay until 6 April 2018 rising to 2.4% until 6 April 2019 then rising to 4.0% 0.2% of your basic pay until 6 April 2018 rising to 0.6% until 6 April 2019 then rising to 1.0% 2.0% of your basic pay until 6 April 2018 rising to 5.0% until 6 April 2019 then rising to 8.0%

 

Set Three

Contributions are based on full earnings before tax.

Your employer pays: You pay: The Government adds tax relief of: Total contribution
1.0% of your gross earnings until 6 April 2018 rising to 2.0% until 6 April 2019 then rising to 3.0% 0.8% of your gross earnings until 6 April 2018 rising to 2.4% until 6 April 2019 then rising to 3.2% 0.2% of your gross earnings until 6 April 2018 rising to 0.6% until 6 April 2019 then rising to 0.8% 2.0% of your gross earnings until 6 April 2018 rising to 5.0% until 6 April 2019 then rising to 7.0%

Your employer will confirm the level of your contributions and the employer contributions payable before you are automatically enrolled.

 

Example 1

If you have earnings from employment of £24,000 per year, your qualifying earnings are calculated for the current tax year as £24,000 - £5,824 = £18,176 per year.

If your employer is only paying the minimum contribution (as above) then the amounts payable in the current tax year are:

Your employer pays: You pay: The Government adds tax relief of: Total contribution
£181.76 per year (£15.15 per month)  £145.41 per year (£12.12 per month) £36.35 per year (£3.03 per month) £363.52 per year (£30.29 per month)

The amount of tax relief that the Government adds in this example is the basic rate of 20%. The amount that you contribute is assumed to be net of basic rate tax. In other words, , for every £8 that you pay to the workplace pension, the Government adds £2. If you’re in a trust based scheme, your contribution is deducted from gross pay, so in the example above, £10 is deducted and you receive tax relief at your marginal rate.

If you are paying contributions, your employer will deduct these from your pay and pay them to the pension scheme on your behalf. The pension provider claims the tax relief added by the Government and adds it to your Service’s pension pot.

You can calculate the amount you might have to pay under automatic enrolment using the Money Advice Workplace Pension Contribution calculator.

If you’re a higher rate income tax payer, you are entitled to receive additional tax relief on your contributions. (This is not the case for trust-based schemes where you receive full tax relief at source. You should ask your employer what type of scheme you are a member of.)

If your employer pays more than the employer’s minimum contribution, you may reduce your contribution, as long as the minimum total contribution is paid. Remember, the tax relief that the Government pays is based on your contribution, so if your contribution reduces, the amount of tax relief added will also reduce.

Both you and your employer can decide to pay more than the minimum amounts, and, although there is no obligation for the employer to pay contributions on earnings above the qualifying earnings cap (£43,000 per year in the 2016-17 tax year), it may choose to do so.

 

Frequently asked...

Where can I find out more?

If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.

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