What are your employer pension costs? Calculate contributions under auto-enrolment, compare qualifying vs total earnings schemes, and see salary sacrifice NI savings.
Show NI savings from salary exchange arrangement
Lower limit: £6,240/year
Upper limit: £50,270/year
Auto-enrolment trigger: £10,000/year
Qualifying earnings contributions are calculated on earnings within this band only.
Employer + Employee
per year
Employer Contribution
£712.80
3% rate
Employee Contribution
£1,188.00
5% rate
Qualifying Earnings
£23,760.00
Within band
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See how the widget worksWorkplace pensions became mandatory for UK employers under auto-enrolment rules. Understanding how contributions are calculated helps both employers budget correctly and employees plan for retirement.
All UK employers must automatically enrol eligible workers into a pension scheme. Workers are eligible if they:
The law sets minimum contribution levels that must be met:
| Contributor | Minimum Rate |
|---|---|
| Employer | 3% |
| Employee | 5% |
| Total | 8% |
There are different ways to calculate the earnings on which pension contributions are based:
Contributions are calculated on earnings between the lower limit (£6,240) and upper limit (£50,270). This is the most common approach and results in lower overall contributions.
Contributions are calculated on the full salary from the first pound. This results in higher contributions but better retirement outcomes.
Salary exchange (sometimes called salary sacrifice) is an arrangement where employees agree to reduce their salary in exchange for larger employer pension contributions. The benefits include:
Many employers pass on some of their NI savings to employees in the form of increased pension contributions, making this a win-win arrangement.
Employers must:
Example: Maria earns £28,000/year. Qualifying earnings scheme, 3% employer.
Employer contributions at the statutory minimum (3% qualifying earnings) and common higher rates:
| Salary | Qualifying earnings | Employer 3% (min) | Employer 5% | Employer 8% |
|---|---|---|---|---|
| £18,000 | £11,760 | £353 | £588 | £941 |
| £25,000 | £18,760 | £563 | £938 | £1,501 |
| £30,000 | £23,760 | £713 | £1,188 | £1,901 |
| £40,000 | £33,760 | £1,013 | £1,688 | £2,701 |
| £50,000 | £43,760 | £1,313 | £2,188 | £3,501 |
Example: James earns £30,000 and sacrifices 5% (£1,500) into pension via salary sacrifice.
| Without salary sacrifice | With salary sacrifice | Saving | |
|---|---|---|---|
| Gross salary | £30,000 | £28,500 | |
| Employer pension (3% QE) | £713 | £713 | |
| Employer NI (15% above £5k) | £3,750 | £3,525 | £225 saved |
| Employee NI (8% above £12,570) | £1,394 | £1,274 | £120 saved |
| Employee income tax (20%) | ~£3,486 | ~£3,186 | £300 saved |
The employer saves £225 in NI per year — often passed on as extra pension contribution. The employee gets £1,500 into their pension pot for a net cost of around £1,080 (after tax and NI savings). See the salary sacrifice pension calculator for exact figures at any salary.
Employees have the right to opt out of the workplace pension within one month of being enrolled. If they opt out within the opt-out window, any contributions already made must be refunded. After the opt-out window, they can stop contributions going forward but existing funds remain in the pension.
Re-enrolment: every three years, you must re-enrol workers who have previously opted out (if they still meet the eligibility criteria). They can opt out again immediately, but you must go through the process. Missing re-enrolment triggers a Pensions Regulator fine — £50–£500/day depending on employer size.
Workers who fall outside auto-enrolment can still request to join your pension scheme:
| Worker type | Age | Earnings | Right to join? | Employer must contribute? |
|---|---|---|---|---|
| Eligible jobholder | 22–66 | Over £10,000 | Auto-enrolled | Yes |
| Non-eligible jobholder | 16–21 or 67+, or 22–66 earning £6,240–£10,000 | Various | Can opt in | Yes (if they opt in) |
| Entitled worker | 16–74 | Under £6,240 | Can join | No obligation |
NEST (National Employment Savings Trust) is the government-backed pension scheme designed for auto-enrolment. It is free to use for employers, has no minimum employer size, and accepts all eligible workers. For most small employers, NEST is the simplest starting point.
Alternatives include master trust providers (e.g. The People's Pension, NOW: Pensions, Nest alternatives), group personal pensions (GPPs) through insurers (Aviva, Legal & General, Royal London), and occupational pension schemes for larger employers. The key criteria: the scheme must be a qualifying scheme under auto-enrolment rules and offer a default investment fund.
Pension contributions add to your overall employment costs alongside employer National Insurance. Use our employee cost calculator to see the combined impact of NI, pension, and other costs on your hiring budget.
Pension contributions receive income tax relief — meaning the government tops up what goes into the pot. There are two different ways this works, and the method depends on your pension scheme:
| Relief at source | Net pay arrangement | |
|---|---|---|
| How it works | Employee pays contributions from net pay; pension provider claims 20% basic rate relief from HMRC | Contributions deducted from gross pay before tax; full relief applied immediately |
| Example (£100 contribution, 20% taxpayer) | Employee pays £80 → HMRC adds £20 → £100 in pension | £100 deducted from gross → tax calculated on remaining salary → full £100 in pension |
| Higher rate taxpayers (40%) | Claim extra 20% via self-assessment | Full 40% relief applied automatically through payroll |
| Employees below income tax threshold | Still get 20% top-up from HMRC — a bonus for lower earners | No benefit if earning below the Personal Allowance |
| Used by | NEST, most personal pensions, stakeholder pensions | Many employer workplace pension schemes, salary sacrifice arrangements |
Important: the 2024 Budget confirmed net pay arrangement workers earning below the income tax threshold will receive a top-up payment from HMRC from 2025 onwards, closing the previous inequality between the two methods.
The table below shows how different contribution rates compound over a career, assuming a £30,000 salary (qualifying earnings basis) and 5% annual growth. These are illustrative projections — actual growth depends on investment performance.
| Total contribution rate | Annual into pot | After 10 years | After 20 years | After 30 years |
|---|---|---|---|---|
| 8% (statutory minimum) | ~£1,901 | ~£23,900 | ~£62,900 | ~£126,000 |
| 10% | ~£2,376 | ~£29,900 | ~£78,600 | ~£157,800 |
| 15% | ~£3,564 | ~£44,800 | ~£117,800 | ~£236,600 |
Doubling the contribution rate from 8% to 15% roughly doubles the pot at retirement. Starting 10 years later halves it. The two levers that matter most: rate and time.
Employers can postpone auto-enrolment for new starters by up to 3 months. This gives you time to assess short-term workers or avoid enrolling someone who may leave quickly. Rules:
When an employee leaves, their pension pot stays in the scheme — it does not disappear. They have three options:
As an employer, your obligation ends when employment ends — you are not responsible for informing them about transfer options, though it is good practice to do so. If you wind up your pension scheme, you must give members 30 days' notice and arrange transfers to a new scheme.
Lost pensions: employees who lose track of old pensions can use the government's free Pension Tracing Service (pensiontracing.service.gov.uk) to find them.