How UK auto-enrolment works
Every UK employer with at least one employee must offer a workplace pension. Eligible employees (aged 22 to State Pension Age, earning over £10,000/year) are automatically enrolled. You can opt out, but if you stay in, minimum contributions kick in from the first day of eligibility.
The minimum contribution is 8% of qualifying earnings — split between 3% from your employer and 5% from you (including 1% basic-rate tax relief). Qualifying earnings are the portion of your salary between £6,240 and £50,270 for 2025/26.
The qualifying earnings band
| Earnings threshold | 2025/26 value |
|---|---|
| Lower threshold (LEL) | £6,240 |
| Upper threshold (UEL) | £50,270 |
| Width of QE band | £44,030 |
Example: on a £35,000 salary, qualifying earnings are £28,760 (£35,000 minus £6,240 lower threshold). Minimum total contribution is 8% × £28,760 = £2,301/year. On a £60,000 salary, qualifying earnings cap at £44,030 (£50,270 minus £6,240), so minimum contribution is 8% × £44,030 = £3,522/year — it doesn’t keep rising with salary.
Relief-at-source vs net-pay vs salary sacrifice
- Relief-at-source (most common): you contribute from net pay; the pension provider adds 20% tax relief automatically. If you’re a higher-rate taxpayer, you claim the extra 20% through Self Assessment — it reduces your tax bill but doesn’t go into the pension itself.
- Net-pay arrangement: contributions come out of gross pay before income tax is calculated. You automatically get relief at your marginal rate — no Self Assessment claim needed. Slightly better for higher-rate earners, slightly worse for non-taxpayers (who miss out on basic-rate relief that RAS would have given them).
- Salary sacrifice: you give up part of your salary in exchange for equivalent employer pension contributions. You save both income tax AND employee NI on the sacrificed amount — which is why salary sacrifice is typically 2-10% more efficient than RAS or net-pay. Your employer may also pass on their NI saving, further boosting contributions.
On a £45,000 salary with minimum contributions (5% employee + 3% employer) and relief-at-source, you pay £129/month from net, the provider adds £32/month of basic-rate relief, and your employer contributes £97/month — total £258/month into your pension. Under salary sacrifice at the same 8% level, you save additional £10/month in employee NI — small but compounds over a career.— GoForma technical team, 2025/26 tax year modelling
The annual allowance
You can contribute up to £60,000 to your pensions each tax year with tax relief (2025/26). This includes employee contributions, employer contributions and any basic-rate tax relief added. For high earners with adjusted income over £260,000, the allowance tapers down to a minimum of £10,000.
You can also carry forward unused allowance from the previous three tax years, provided you were a pension scheme member during those years. This can let you contribute significantly more in a single year — useful if you have a bonus or one-off income spike.
How much should you actually contribute?
The minimum 8% total is well below what most retirement planning rules of thumb recommend. A common guideline:
- Age you start / 2 = contribution % — so start at 25, contribute 12.5%; start at 30, contribute 15%; start at 40, contribute 20%.
- That’s the combined employee + employer figure, targeted at replacing around two-thirds of final salary in retirement.
- Maximise employer matching first — if your employer matches up to 6%, contributing 6% yourself is effectively a 100% return on that portion before investment growth.
For higher-rate taxpayers, pension contributions are one of the most tax-efficient uses of income — especially if you’re in the £100k–£125,140 personal allowance taper band, where the marginal tax saved on a pension contribution can be 60%+.