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Employer pension contributions

Tax savings for companies, employers and employees

Important information - Pensions offer some great tax perks, but they are designed to help fund retirement, so you usually need to be at least 55 (rising to 57 from 2028) before money can be taken out again. Pension and tax rules can change, and any benefits will depend on your circumstances. This information is not personal advice. If you’re not sure what’s best for your situation, you should seek financial advice.

Tax benefits of employer contributions

  • Business owners and directors – If you are an employee of the company, you can make employer contributions to your own pension which can be offset against the business’ corporation tax. Unlike salary, when an employer makes a pension contribution on behalf of their employee, they can also save up to 13.8% on National Insurance contributions that would otherwise need to be paid.
  • Sole traders and partnerships – If you have employees, you can make employer contributions to their pensions which can be offset against the business’ income tax liability. Unlike salary, when an employer makes a pension contribution on behalf of their employee, they can also save up to 13.8% on National Insurance contributions that would otherwise need to be paid.
  • Employees – Subject to your employer’s approval, you can save tax and National Insurance by exchanging part of your salary for an employer pension contribution (separate to any usual pension contributions made).

Pension and tax rules are complex subjects and can change. If you're not sure what’s right for your situation you should seek professional advice.

How do employer contributions work?

Workplace pensions

All employers must offer a workplace pension scheme and automatically enrol eligible workers in it. Pension contributions are normally split between employers and employees. For most people, the minimum total contribution value that must be made under automatic enrolment is 8% of an employee’s qualifying earnings. Employers must contribute at least 3% of this value in most cases, and the rest must be paid as an employee contribution from their pay, after tax. Some employers may offer contribution matching which means they’ll match what an employee pays in, up to a certain limit.

Salary sacrifice contributions

If an employee exchanges £1,000 of their salary for an employer pension contribution, they would receive the full £1,000 in their pension. The company won’t pay National Insurance either and could even choose to pass this saving on to the employee as an addition to the pension contribution, if they like.

Employer
contribution
Salary Tax & NI
deducted
Amount paid
into pension
Tax relief Total in
pension
Excludes NI
Saving
£1,000 £0 £1,000 £0 £1,000
Includes NI
Saving
£1,000 £0 £1,138 £0 £1,138

Contrast this with an employee making a pension contribution from their salary after tax (like workplace contributions above). A basic-rate taxpayer will pay income tax of 20% and National Insurance of 12% on their salary. So for every £1,000 they receive, £320 is deducted. They can add the £680 they’re left with to a pension and receive tax relief, but they can’t reclaim any National Insurance.

Employee
contribution
Salary Tax & NI
deducted
Amount paid
into pension
Tax relief Total in
pension
Personal £1,000 £320 £680 £170 £850

How much can an employer pay in?

Unlike personal contributions, an employer can contribute more than an employee earns, up to the current annual allowance of £40,000. If the employee is able to take advantage of ‘carry forward’, then it could be even more. Up to £160,000 in some cases.

There are a few exceptions. For example, if you have 'adjusted income' of over £240,000, then your contributions might be limited to as little as £4,000. Our annual allowance factsheet has more information.

It is important to remember HMRC could question the contribution if the total salary and benefit package is excessive for the work undertaken. Contact your accountant if in doubt.

Different rules may also apply if you’ve already accessed a pension. See how much you can invest

How to make an employer contribution

All employer contributions are paid gross, which means the full instructed amount will be taken as payment. You’ll usually need to be at least 55 (rising to 57 from 2028) before you can access the money in your pension. As a SIPP investor you need to be happy to make your own investment decisions and understand that all investments can rise and fall in value. It’s possible to get back less than you pay in.

Make an employer contribution to your own HL Self-Invested Personal Pension

If you’re authorised to make payments on behalf of your limited company and you’ve registered your company details with us, you can use your company’s debit card to make employer contributions to your HL SIPP online.

Simply log in to your account as normal and click the blue ‘Top up’ button. You’ll see the ‘Employer contribution’ tab, where you can enter your company card details and make a gross contribution. Before applying, it’s important you understand the risks and key features of the SIPP.

Make an employer contribution to an employee’s HL Self-Invested Personal Pension

If you’re an employee looking to arrange an employer contribution, you and your employer will need to complete a postal application form. Your employer can instruct a new contribution by cheque, bank transfer, and/or Direct Debit.

Need to register your company with us?

Call our helpdesk on 0117 980 9926. We can get your company registered and arrange the employer contribution in one phone call.

I can speak to someone on the phone and everything is explained in a very helpful and easy to understand way.

MR HARLEY

Awards

BEST BUY PENSION 2021
Boring Money


BEST SIPP PROVIDER
UK Investor Magazine Awards 2021


BEST BUY DIGITAL PENSION 2021
Boring Money


See all of our awards

Help and support

If you have any questions about pensions, you can speak to one of our UK-based client support experts.

Call us on 0117 980 9926

Alternatively, you can email us.