The payments both you and your employees make into a pension plan under auto-enrolment are called contributions. Unsurprisingly, these payments are known as 'employee contributions' and 'employer contributions'. A pension plan is a long-term investment, so its value can fall as well as rise and your employees could get back less than was paid in.
Here, we'll look at how much those contributions need to amount to in terms of a percentage of an employee's salary. You can find out more about how to deduct the employee part of those contributions on the Payments page.
Minimum contributions at a glance:
- A Defined Contribution (DC) pension scheme must receive a minimum level of contributions
- Both you and your employees can choose to pay in more
- As the employer, you have the option of covering any amount up to and beyond the minimum yourself.
The precise minimum percentages both you and your employees pay in can actually differ slightly, depending on the pensionable pay definition that's used; you can see these in the table below. The definition of pensionable pay definition used needs to meet certain quality requirements.
How is pensionable pay defined?
There are basically two approaches, with a number of variations.
- Qualifying band earnings is the standard measure - this means the employee's earnings lie within a specified pay range (which is reviewed annually by the government). Earnings in this case include salary and wages, bonuses, commission, overtime, statutory sick pay and statutory parental payments.
- Self-certification is the alternative where the employer can decide to use a different definition of pensionable pay (using 'basic pay', 'total pay' or 'own definition').
In either case, the key common point is that all contributions have to meet the quality requirements defined in legislation for these measures. You can read up more about this on The Pensions Regulator website but in principle it means that the minimum contribution measures have to be met and paid, and in the case of self-certification certified as such.
You can see the pay definitions and minimum contributions in the table below.
|Pensionable pay definition||Employer minimum||Employee minimum||Total minimum contribution|
|Qualifying band earnings1||3%||5%||8%|
1 For the 2023/24 tax year the qualifying band earnings is £6,240 - £50,270
2 If you choose to define your own approach, this requires the pensionable pay to be at least equal to basic pay and make up at least 85% of all earnings.
An employee minimum only applies if the total (combined) minimum is not covered by the employer. The employee minimum is the difference between the total combined minimum, and the employer contribution. For example, under Basic Pay above, if the employer covers 6% of the contribution, then the employee minimum in that case would become 3%, so that the total minimum contribution is 9%.
Remember, both you and your employees can pay in more than the minimum contribution amount. Even making a small increase could make a big difference to the amount of money they could get back in their retirement.