Employer pension contributions
Tax benefits of employer contributions
Business owners and directors
If you're an employee of the company, you can make employer contributions to your own pension which can be offset against the business’ corporation tax. 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. 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.
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).
Important information - Pensions are designed to help fund retirement. You usually need to be at least 55 (rising to 57 from 2028) to access money in a pension. Pension and tax rules can change, and any benefits will depend on your circumstances. Investments can rise and fall in value, so you could get back less than you invest. This information is not personal advice. If you’re not sure what’s best for your situation, please ask us for financial advice.
How do employer contributions work?
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'd 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.
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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. Tax rules can change, and benefits depend on your circumstances.
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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 £60,000. If the employee is able to take advantage of ‘carry forward’, then it could be even more. Up to £180,000 in some cases.
There are a few exceptions. For example, if you have 'adjusted income' of over £260,000, or you’ve already accessed your pension, then your contributions might be limited to as little as £10,000.
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.
How to make an employer contribution
There are three ways to make an employer contribution to an HL Self-Invested Personal Pension (SIPP). Before an employer contribution is made the HL SIPP investor must be happy with the risks and Key Features of the SIPP. All employer contributions are paid gross, which means no tax relief will be claimed on the contribution value. SIPP clients can usually access the money in their pension from age 55 (rising to 57 from 2028).
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