Since Auto-Enrolment was introduced in 2012, employers in the UK must set up a workplace pension for their eligible employees. To be eligible, employees must:
- work in the UK;
- be between 22 years old, and State Pension age (currently 66 rising to 67 in 2028);
- earn more than £10,000 a year; and
- not already be a member of a suitable workplace pension scheme.
You can choose not to save into your company pension - and give up the free money from your employer - but you’ll have to sign an opt-out form.
If you’re eligible for your workplace pension, then you’ll be required to pay at least 5% of your qualifying earnings into the scheme. Qualifying earnings is a band of earnings that you can use to calculate contributions and is used by most employers. The figures are reviewed annually by the government, for the 2024/25 tax year it’s £6,240 - £50,270 a year.
In real terms, you’re only usually paying 4% yourself as the government typically pays the other 1% in the form of tax relief. Most UK taxpayers get tax relief on their pension contributions, which means that the government effectively adds money to your pension pot. Basic rate taxpayers get a 25% tax top up; HMRC adds £25 for every £100 you pay into your pension making it £125.
Thanks to Auto-Enrolment, your employer must pay a minimum of 3% too. Some employers will go above and beyond this minimum amount and offer benefits such as pension matching.
Do employers match pension contributions?
Some employers offer matched pension contributions. Where it’s an option, there’s usually a maximum limit to the employer match. This means an employer will only match your contributions up to a specific percentage of your qualifying earnings. The easiest way to find out if your employer offers pension matching and what the maximum limit is, is to contact your HR department.
How does pension contribution matching work?
Let’s say your employer offers a 5% match on pension contributions. As you’re already paying in 5% of your qualifying earnings you won’t need to take any action, however your employer will effectively increase their contribution from the statutory 3% to 5%, so it’s equal to yours.
Now let’s imagine your employer offers up to a 7% match on pension contributions. This means that if you contributed 7% of your salary through your workplace pension, they’d match your contribution. But, if you wanted to increase the amount you pay in further, to 8% of your salary, your employer would still only contribute their 7% match limit.
Employer contribution matching limits can vary depending on your age, how long you’ve been with the company, or the type of pension scheme offered. Your HR department will be able to share more information on whether or not this is a benefit offered by your employer.
Why are employer matched pension contributions a good idea?
The earlier you start contributing to your pension, the greater the benefit of compounding. Compounding is the process of earning interest on your interest. With contribution matching, your initial contributions and the employer match grow over time, and you benefit from investment growth on that amount. This snowball effect can significantly increase your retirement savings in the long run.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 06-04-2024
