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How much goes into your workplace pension

Unlike other ways of saving, a workplace pension means you aren’t the only one putting money in. Your employer has to contribute too, as long as you earn over £5,564 a year.

You will also get a contribution from the government in the form of tax relief. This means some of your money that would have gone to the government as income tax, goes into your workplace pension instead.

• Workplace pensions and tax relief

How much you, your employer and the government will pay into your pension depends on the type of pension scheme your employer has. Whoever runs your pension scheme will be able to give you more information.

Your employer will take your contribution directly from your pay. This applies however regularly you get paid, for example, daily, weekly, monthly, or four weekly.

Example:

The contributions to John’s workplace pension are worked out as a percentage of his gross basic salary. ‘Gross’ means before tax comes off, ‘basic’ means not including overtime or bonuses.

John earns £12,000 a year (£1,000 a month). This is his gross basic salary. He is paid monthly.

His employer’s pension scheme uses the following percentages to calculate the contributions:

• John’s contribution - he pays in four per cent of his gross basic salary
  
• employer’s contribution – an amount equal to three per cent of John’s gross basic salary
  
• government’s contribution - in the form of tax relief, is equal to one per cent of John’s gross basic salary

This means

• John pays in £40 a month - this is taken directly from his monthly pay
• his employer pays in £30 a month
• the government, in the form of tax relief on his payment, pays in £10 a month

Therefore, although John puts in £40 a month, the total contribution to his pension is £80 a month.

The government has set minimum levels for what has to be paid in by your employer and what is contributed in total.

Please note: In this example, John's employer is contributing more than the minimum required by the government. This means that someone earning £12,000 a year may receive less from their employer than shown here.

More information on these minimum levels can be found in ‘What to expect from your employer and your workplace pension’ - see the following link.

• Employers' workplace pension obligations

The Money Advice Service have developed an on line calculator to help you find out how much you, your employer and the Government could pay into your workplace pension. Simply enter your salary, and the calculator will show you what this means in terms of pension contributions in pounds and pence.

• Workplace pension contribution calculator - Money Advice Service Opens new window

How much you’ll get from your workplace pension when you retire

It’s possible to get an idea of how much you will get from a pension by getting a ‘pension estimate’. This is also sometimes known as a ‘pension projection’. You can get this from whoever runs your pension scheme.

They may also have an online calculator that can help you work out the income you’ll get when you retire.

Will the amounts paid into my pension change?

The amounts paid into your pension could increase or decrease if your basic salary goes up or down.

Most schemes enable you to increase the amount you put in, if you want, up to a maximum amount. The amount contributed by the government in the form of tax relief may also change. Whoever runs your pension scheme will be able to give you more information.

Will it be enough?

Being in a pension at work means you’ve taken an important step towards giving yourself the lifestyle you would like later in life. You’ll need money for paying bills, transport and food, but you may also want money to:

• run a car
• meet friends for lunch or drinks
• buy gifts for your family or friends
• go on days out / holidays
• do sport or other leisure activities

Once you have an estimate of how much income you can expect from your workplace pension you can think about if it will be enough.

If you’re concerned you won’t have enough, you could think about contributing more to your pension, working longer, and saving in other ways. Find out more about how you can increase your income in retirement:

• Increasing your income in retirement

A note about the earnings figure

If you earn more than £5,564.00 (even just a penny more) a year and you are in a workplace pension, your employer has to contribute to it. If you earn £5,564.00 or less a year, your employer does not have to contribute, but can choose to do so.

Please note the earnings figure listed above (£5,564 year) may change each April. If it does, this page will be updated. This earnings figure applies however regularly you get paid, for example, daily, weekly, monthly or four weekly.

What to expect from your employer

Find out what your employer must do, what they can choose to do and what they must not do.

• Employers' workplace pension obligations

More useful links

• Saving for retirement

• Workplace pensions - making additional voluntary contributions to increase your pension