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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 have been increasing up to 6 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 (£6,240 to £50,000 for the tax year 2020/21). 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:

Date Your employer pays: You pay: The Government adds tax relief of: Total contribution:
From 6 April 2019 3.0% of your qualifying earnings 4.0% of your qualifying 
earnings 
1.0% of your qualifying 
earnings 
8.0% of your qualifying 
earnings 
6 April 2018 to 5 April 2019 2.0% of your qualifying earnings 2.4% of your qualifying 
earnings 
0.6% of your qualifying 
earnings 
5.0% of your qualifying 
earnings 
Up until 5 April 2018 1.0% of your qualifying earnings 0.8% of your qualifying 
earnings 
0.2% of your qualifying 
earnings 
2.0% of your qualifying 
earnings 

For more detail, please see Example 1 below. 

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

Set One

Contributions based at least on basic pay.

Your employer pays: You pay: The Government adds tax relief of: Total contribution
4.0% from 6 April 2019
3.0% 6 April 2018 to 5 April 2019
2.0% up to 5 April 2018
4.0% of your basic pay from 6 April 2019
2.4% of your basic pay 6 April 2018 to 5 April 2019
0.8% of your basic pay up to 5 April 2018
1.0% of your basic pay from 6 April 2019
0.6% of your basic pay 6 April 2018 to 5 April 2019
0.2% of your basic pay up to 5 April 2018
9.0% of your basic pay from 6 April 2019 
6.0% of your basic pay 6 April 2018 to 6 April 2019
3.0% of your basic pay up to 5 April 2018

 

Set Two

Contributions based on at least pay where pensionable 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
3.0% from 6 April 2019
2.0% 6 April 2018 to 5 April 2019
1.0% up to 5 April 2018
4.0% of your basic pay from 6 April 2019
2.4% of your basic pay 6 April 2018 to 5 April 2019
0.8% of your basic pay up to 5 April 2018
1.0% of your basic pay from 6 April 2019
0.6% of your basic pay 6 April 2018 to 5 April 2019
0.2% of your basic pay up to 5 April 2018
8.0% of your basic pay from 6 April 2019 
5.0% of your basic pay 6 April 2018 to 6 April 2019
2.0% of your basic pay up to 5 April 2018

 

Set Three

Contributions are based on full earnings before tax.

Your employer pays: You pay: The Government adds tax relief of: Total contribution
3.0% from 6 April 2019
2.0% 6 April 2018 to 5 April 2019
1.0% up to 5 April 2018
3.2% of your full pay from 6 April 2019
2.4% of your full pay 6 April 2018 to 5 April 2019
0.8% of your full pay up to 5 April 2018
0.8% of your full pay from 6 April 2019
0.6% of your full pay 6 April 2018 to 5 April 2019
0.2% of your full pay up to 5 April 2018
7.0% of your full pay from 6 April 2019 
5.0% of your full pay 6 April 2018 to 6 April 2019
2.0% of your full pay up to 5 April 2018

 

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 - £6,240 = £17,760 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
£532.80 per year (£44.40 per month)  £710.40 per year (£59.20 per month) £177.60 per year (£14.80 per month) £1,420.80 per year (£118.40 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. This is known as ‘Relief at Source’.  The way tax relief is gained if you are in a trust based scheme is different – please see the note below. 

If you are paying contributions, your employer will normally deduct these from your pay after Tax and National Insurance have been applied (your net pay) and pay them to the pension scheme on your behalf. The pension provider adds the tax relief at the basic rate to your pot and claims it from the Government on your behalf.

If you’re a higher rate income tax payer, you are entitled to claim additional tax relief on your contributions. Again, this is different for trust-based schemes – please see the note below.

If your employer pays more than the employer’s minimum contribution, they may allow you to 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 (£50,000 per year in the 2020/21 tax year), it may choose to do so.

 

Trust Based schemes

This type of scheme usually operates a Net Pay arrangement.  This means that the pension contributions are deducted before income tax is applied.  This means, for taxpayers, full tax relief at the highest rate is automatic and no income tax is paid on the money being contributed to a pension. 
 
So in the example above, £10 is deducted from your gross pay and you would pay tax on £10 less of your earnings.  As you can see this has the identical effect for a basic rate tax payer.
 
A higher rate tax payer has no need to claim any additional tax relief. As the taxable element of your earnings has been reduced, your marginal rate is automatically accounted for.
 
If you are unsure you should ask your employer or your scheme provider what type of scheme you are a member of.
 

 

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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