The government has set minimum levels of contributions that must be made into your workplace pension scheme by you and/or your employer. Your employer will tell you how much you’ll have to contribute. Find out how the minimum contribution is worked out under the different options.

What are minimum pension contributions?

The minimum total contributions under automatic enrolment have been set by the government. The current minimum total contribution will be 8% for most people.

Your employer must contribute a minimum amount, in most cases this is 3%. If the contribution from your employer isn’t enough to cover all of the minimum total contribution, you’ll need to make up the difference.

The government will also help you save for your pension by giving you tax relief on your contributions. The minimum total contribution into your pension is usually based on what’s known as ‘qualifying earnings’.

How minimum contributions are worked out

The minimum contribution is made up of money from your pay, money contributed by your employer and tax relief from the government. If the total minimum for your pension is based on qualifying earnings, then the contributions will be worked out as follows:

Minimum contributions based on qualifying earnings:

• Employer - 3%
• Worker - 4%
• Tax relief from the Government - 1%
• Total - 8%

What are qualifying earnings?

These are a section of your earnings before Income Tax and National Insurance contributions are deducted. For the 2021-22 tax year this is everything over £6,240 and up to £50,270.

Earnings include:

• your wages or salary
• commission
• bonuses
• overtime.

What is pensionable pay?

Your employer might 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.

Has your employer decided to use pensionable pay rather than qualifying earnings? Then they must meet one of three sets of alternative requirements for their pension scheme to qualify for use under automatic enrolment and to calculate the minimum total contributions that need to be made.

Your employer will confirm the level of contributions they will make and the level that is needed from you before you’re automatically enrolled.

Click here to view the three sets & an example.

The way you receive tax relief will depend on the type of pension scheme you’re in and how your scheme chooses to manage it. If you’re a higher rate taxpayer you might need to claim the extra tax relief. Your pension scheme should tell you about this.

If your employer contributes more than the employer’s minimum contribution, they might allow you to make a lower contribution, as long as the minimum total contribution is paid.

The tax relief given by the government is based on the amount of your contribution. So if the amount of your contribution reduces, the amount of tax relief you benefit from also reduces.

Both you and your employer can decide to contribute more than the minimum amounts. Although there’s no obligation for your employer to make contributions on earnings above the qualifying earnings cap (£50,270 a year in the 2021-22 tax year), they might choose to.