Pension Academy video series

Episode 3: Who pays into a pension?

Key takeaways

Payments into your pension are called 'contributions'.

If you're employed, you and your employer may contribute to your workplace pension through payroll.

Most basic rate taxpayers get a 25% tax top up on their personal contributions, meaning the government will usually contribute £25 for every £100 you save.

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Pensions are all about investing in your future so you can enjoy a happy retirement. So let’s look at that!

If you’re enrolled into a workplace pension, money will be paid into your pension from three sources:
  • Your employer will pay into it
  • You’ll pay into it
  • And the government will boost whatever you pay in by 25%
All these payments are called 'contributions'. So if you hear talk about workplace contributions or employee contributions, they’re referring to the payments you or your employer are making into your pension. Payments and contributions are the same thing.

If you’re eligible to join the scheme, by law, your employer has to contribute at least 3% of your qualifying salary into your pension. So if you earn £30,000, they’ll pay in at least £712 a year. But some companies will contribute more than that, particularly those in the public sector. So if you’re a teacher or a nurse, you might get a workplace pension contribution of closer to 10% - which means your employer would contribute £2,376 a year if you earn £30,000.

You can choose how much you personally pay into your pension, but it must be 5% of your salary or more, including 1% made up of tax relief. So if you earn £30,000 you’d need to pay in at least £1,188 a year. But again, you can pay in more than that if you want. We’ll talk about how much you should pay into your pension in the next video, but for now you just need to know that the more you pay in, the more your pension could be worth when you retire.

Now as I said, the government will boost your pension contributions by 25%. So if you pay in a pound, the government will add an extra 25p. It’s basically a perk to encourage you to save for your future. And it’s a really good one - it’s free money, guys! So make the most of it. If you’re a higher or additional rate taxpayer, you'll get even more back from the government, but you'll need to complete a Self-Assessment tax return.

If you’re signed up to your company’s workplace pension, all the payments and admin will be done for you. You just need to tell your employer how much you want to contribute. But if you forget or they don’t ask you, don’t worry. They should set your contribution at the minimum 5% by default. That said, speak to your HR department if you’re not sure. Mistakes can happen, so it’s best not to leave things to chance!

Once everything’s set up, contributions will be made automatically each month when you get paid. And you can see the details on your payslip.

So that’s all good if you work for a company. But what if you work for yourself or if you're out of work? Well, you can still save towards your retirement by putting money into a personal pension. You won’t get employer contributions, but the government will still boost whatever you pay in by 25% or more. And hey, that’s still free money! So make sure you’re paying into a pension and don’t put it off, no matter how busy you are. If you delay putting money into your pension now, you’ll need to pay in a lot more in the future to catch up.

So let’s recap:
  • Money paid into your pension is called a contribution
  • If you’re in a workplace pension, your employer will contribute at least 3% of your qualifying salary into it, you’ll contribute at least 4%, and the government will boost your contribution by 25%
  • If you’re self-employed or unemployed, you can still contribute to your own personal pension. You won’t get an employer contribution, but the government will still help you boost your contribution by 25%
This video was presented by Patricia Bright on behalf of PensionBee. Patricia Bright isn't a financial adviser and the views and opinions expressed in this informative video are those of Patricia alone and do not constitute financial advice.

The content of this video has been reviewed by the pension experts at PensionBee and was confirmed to be correct and in line with current HMRC guidelines and legislation based on their understanding of current tax legislation as of 4 August 2023.

Remember, as with all investments, your capital is at risk.

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