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From 6 January 2024, the main rate of class 1 National Insurance contributions (NIC) deducted from employees’ wages is reduced from 12% to 10%. From 6 April 2024, the main rate of self-employed class 4 NIC will reduce from 9% to 8% and class 2 NIC will no longer be due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits. Our guidance will be updated in full in spring 2024.

Updated on 6 April 2023

Pensions auto-enrolment: contributions

If you are eligible for auto-enrolment and do not choose to opt out, there are certain contribution requirements that must be met. Here we look at how much needs to be paid into your pension under auto-enrolment, and how this might be split between you and your employer.

Content on this page:

Overview

Normally, a percentage (%) of your ‘qualifying earnings’ has to be put into your auto-enrolment pension each pay day, although there are other contribution methods, for example pensionable pay.

Your qualifying earnings include your wages or salary, bonuses, commission as well as other items, such as statutory pay, before any tax or National Insurance contributions are deducted.

  Overall total contribution required Minimum from employer Potential contribution from you
Currently 8% 3% 5%


Please note, the above percentages will apply to any qualifying earnings you have over £6,240 (for 2023/24) up to the limit of £50,270. The £6,240 and £50,270 yearly amounts translate into the following figures depending on how often you are paid:

  £6,240 a year £50,270 a year
Weekly £120 £967
2-weekly £240 £1,934
4-weekly £480 £3,867
Monthly £520 £4,189

Example

Marcie earns £220 per week. Neither Marcie (nor her employer) pay pension contributions on the first £120 of pay, thus they will each pay contributions based on £100 (£220 less £120) each week.

Example

Richard (and his employer) normally pay pension contributions each month based on his salary of £2,500 (this means they actually only pay them on £1,980 as they do not pay them on the first £520 of pay). In one month, though, he has to work a lot of overtime because a colleague is ill and is paid an extra £1,750. That means he is paid £4,250 that month. No pension contributions are due on the amount he has earned below £520 or in excess of £4,189. Richard and his employer will each pay pension contributions on £3,669 that month.

Employer contribution

As mentioned in the table above, employer must make a minimum contribution (currently 3%). However, your employer can choose to pay more – meaning you have to pay less (unless you want to pay more in yourself).

Therefore, the amount you have to pay depends on how much your employer pays. For example, in the tax year 2023/24, the minimum total contribution is 8% of which your employer must pay 3%. Instead, if your employer chose to pay the full 8%, then you would not have to pay anything (unless you wanted to). If your employer pays their minimum amount of 3%, then you must pay 5% as the overall minimum contribution is 8%.

This flexibility means that sometimes, an employer might operate salary sacrifice arrangements for your auto-enrolment pension.

Your employer should tell you how much you will need to contribute. MoneyHelper provides a free workplace pension contribution calculator to help work out how much you will have to contribute. Your contributions will reduce your pay, which could lead to an increase in any benefits you are on.

Tax relief for employees

If you do have to contribute, you will normally get tax relief on the contribution. How you receive this tax relief depends on wither your employer is operating a ‘relief at source scheme’ or a ‘net pay scheme’. You should note that your employer’s contributions will not be a taxable benefit on you no matter which tax relief arrangement the pension scheme uses.

Relief at source scheme

If the pension scheme uses a ‘relief at source’ method of tax relief, then the scheme provider is able to claim 20p in tax relief from the government on every 80p you pay in, regardless of how much you earn (this will be paid directly by the government into your pension pot). The tax relief therefore means that the potential contribution percentage for you, the employee, is as follows – assuming your employer is contributing the minimum of 3%:

  • Net contribution (actual amount paid by you, the employee): 4%
  • Tax relief claimed from the government by the scheme provider: 1%
  • Total gross employee contribution: 5%.

Example

Petro (and his employer) pay pension contributions each month based on his salary of £1,500. The first £520 of this is not counted so they each have to pay contributions based on £980 each month. In 2023/24, Petro will have to contribute 5% of that pay, assuming his employer pays the minimum contribution of 3%. The contribution Petro needs to pay is £49 per month. But the government pays part of that by giving him 20% tax relief on the amount he pays (£9.80). The actual cost to him is £39.20, but the full £49 goes into his pension pot, together with the sum paid by his employer, another £29.40.

Net pay scheme

Some other pension providers use a different approach to tax relief, known as net pay arrangements. With a net pay pension scheme, any contributions you make will be automatically taken from your pay packet and will lead to a reduction in your take home pay. Generally speaking, this means employees do not get any tax relief unless their earnings are more than £12,570 (in 2023/24). You should check with your employer which type of pension scheme they use.

For more information about tax relief on pension contributions, see our page How tax relief is given on pension contributions. For more on tax relief problems for low earners in net pay arrangements (and some changes that are on the horizon to improve the situation, please visit our dedicated page.

Most pension schemes will allow additional regular or one-off contributions to be made into your pot, over and above the minimum percentages noted in the table above.

Where contributions go

Your employer must choose a suitable pension company to receive and invest all the contributions which are made. Your employer will have to give you the details of the pension company it has chosen.

Once you have been auto-enrolled, the pension company will write to you with a welcome pack telling you everything you need to know about being a member of their scheme and how it works, from logging into your online account for the first time (most pension companies allow you to keep track of your pension pot online) to what happens to your money if you die.

The pension company will invest the contributions. Your pension ‘pot’ is separate from those of everyone else and so you might be able to make some decisions about where your money is invested if you want to. Any growth within the pension pot is tax-free, but the value of investments can increase or decrease.

For information on what happens if you leave a job see here.

The amount of money you have when you retire depends on how much has been paid in and how well the investments have performed. In most schemes when you retire you can take some of your pension as a tax-free lump sum. You can choose how to take the rest, for example as an income or as a further lump sum, but you may have to pay tax on it. You can find out more about your options on our page Pension withdrawals.

Going on maternity leave

If you are about to go on maternity leave, so that you will have a reduced income, you may wonder what happens with pension contributions?

Assuming you are already in a pension scheme before you go on maternity leave, then your own pension contributions will usually be based on the pay you actually receive, for example, your statutory maternity pay (SMP).

Your employer’s contributions will be based on your earnings before your maternity leave began.

Employers are required to make contributions for the full 26-week ordinary maternity leave period. If you decide to extend your leave, the employer contributions must continue to the extent there is SMP or any other contractual income still being paid (this will usually only be up to 39 weeks).

You can find out more on the Moneyhelper website.

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