Pension Tax Relief: How It Works
What Is Auto-Enrolment?
Auto-enrolment is a government initiative designed to help more people save for their retirement through a workplace pension. Instead of choosing to join a pension scheme, eligible workers are automatically enrolled by their employer. Contributions are taken from your pay, your employer adds their share, and tax relief increases the total further.
Auto-enrolment aims to make pension saving the default option for anyone working in the UK, and it has become one of the most significant improvements in pension participation in recent decades, with millions of people now building private pension income alongside their State Pension.
You can remain in the scheme, increase contributions, or opt out, but being automatically included ensures you never miss out by accident.
Who Is Eligible for Auto-Enrolment?
Instead of setting up a pension yourself, you’re automatically added to your employer’s scheme if you meet certain criteria. To be automatically added to a workplace pension, you typically must:
- Work in the UK
- Earn £10,000 or more from one job (2024/25 tax year)
- Be aged between 22 and State Pension age (66 in 2025)
If you don’t meet one or more of these criteria, it doesn’t mean you’re excluded. Workers under 22, part-time employees, and those earning below the auto-enrolment thresholds can still ask to join their employer’s scheme at any time. Your employer must allow you to join and, depending on your income, may also be required to contribute.
How Auto-Enrolment Works
Once you meet the eligibility criteria, your employer must place you into a qualifying workplace pension scheme automatically. From then on, contributions are handled for you through your salary.
Salary deductions go straight into your pension
A small percentage of your wages is taken before you’re paid and added to your pension pot. You don’t need to arrange anything yourself; the contributions are taken automatically.
Your employer adds their contribution
Your pension grows faster because your employer must contribute too. They cannot contribute less than the legal minimum, and some employers choose to contribute more.
Tax relief boosts your payments
The government adds extra money in the form of tax relief, meaning part of your pension contribution comes from tax you would otherwise have paid. This makes workplace pensions highly tax-efficient.
Your contributions are invested
Once paid in, your contributions are invested into funds designed to grow over time. You can usually switch your investment options if you prefer a different level of risk or strategy.
How Much You and Your Employer Pay In
Under auto-enrolment, both you and your employer must pay into your pension each time you’re paid. The law sets minimum auto-enrolment contributions to ensure everyone saving into a workplace pension receives at least a basic level of support.
Most auto-enrolment pensions follow these minimum rules:
- You contribute 5% of your qualifying earnings
- Your employer contributes 3% of your qualifying earnings
- Together, this makes a minimum total contribution of 8%
You can choose to pay more than the minimum amount if you wish, and some employers may offer higher contributions. However, your employer cannot pay less than their minimum requirement.
Qualifying earnings: Your contributions are not calculated from your full salary. Instead, they are based on income between £6,240 and £50,270 (2024/25 tax year). This portion of income is known as qualifying earnings.Example of how it’s worked out:
If you earn £30,000 a year, only the earnings between £6,240 and £30,000 count towards contributions:
Qualifying earnings: £30,000 − £6,240 = £23,760
Your 5% contribution: £1,188 per year
Employer’s 3% contribution: £713 per year
Total yearly contribution: £1,901
Pension Providers Used for Auto-Enrolment
Employers must use a pension provider that meets certain regulatory standards.
Common providers include:
- Nest (government-backed scheme)
- People’s Pension
- NOW: Pensions
- Aviva
- Legal & General
- Royal London
- Scottish Widows
Each workplace pension scheme comes with its own set of features, including different charges, investment options, online tools for managing your pension, and the range of retirement benefits you can choose from.
If you’re unsure about how your scheme works or what options are available to you, your employer must either provide the relevant information or direct you to the pension provider so you can review the details yourself.
Your Rights Under Auto-Enrolment
Auto-enrolment is designed to protect your long-term financial wellbeing, and with it comes a set of rights that put you firmly in control of your retirement savings. If you’re eligible, you can expect support from your employer and the confidence that your pension is being funded on your behalf.
You have the right to:
- Be automatically enrolled if you meet the criteria
- Receive employer contributions alongside your own
- Get clear information about how your pension works and what contributions will be made
- Ask to join the scheme, even if you don’t qualify for automatic enrolment
- Leave the scheme (opt out) if you decide it isn’t right for you
- Rejoin in the future if your circumstances change
- Keep your pension if you change jobs, as your savings always remain yours
Your employer must support your right to save. They cannot encourage you to opt out, refuse to enrol you, or treat you differently because you choose to stay in the scheme.
Can You Opt Out of Auto-Enrolment?
You can choose to leave your workplace pension, but only after you’ve been enrolled on the scheme. Opting out before enrolment isn’t possible; your employer must add you first, and then you decide whether to stay or leave.
Once you’re enrolled, you opt out directly through your pension provider (not your employer). They will give you an opt-out reference number and instructions to follow.
What happens to the money already paid in?
If you opt out within one month, all contributions taken from your pay are refunded. If you leave after one month, the money stays in your pension pot and continues to be invested for your future.
What do you lose if you opt out?
Your employer contributions (free additional money from your workplace), tax relief added by the government, and growth from long-term pension investments. Because of this, choosing to leave a pension should be considered carefully.
Even if you do choose to opt out, your employer must re-enrol you every three years if you still meet the eligibility criteria. This ensures you get another chance to save for retirement automatically.
Can You Have Multiple Auto-Enrolment Pensions?
Yes, if you change jobs, your new employer will usually set up a fresh workplace pension for you, which means you could build up several pension pots over time. Each pot will remain yours, regardless of where you work next, and the money will continue to be invested until you access it at retirement.
You can choose to leave each pension where it is, transfer some of them into a single pot, or review them later with professional guidance. Managing your pensions as you change jobs ensures you make the most of the contributions you’ve built up and don’t lose track of pots that could form an important part of your retirement income.
What Happens If You Change Jobs?
If you change jobs, your pension pot stays in your name, and contributions stop from your old employer. Your new employer will then assess you for auto-enrolment and start a new pot (unless they use the same provider). If you are changing jobs, you should:
- Keep old pension paperwork
- Notify your provider if you change your address
- Check whether charges or benefits differ between schemes
Many people forget older pensions, so maintaining records can help you avoid losing track of savings.
Tax Relief and Auto-Enrolment
Auto-enrolment pensions benefit from pension tax relief, meaning the government adds money to your contributions. Basic rate taxpayers automatically receive 20% tax relief, while higher and additional-rate taxpayers can claim even more through their tax return.
Even non-taxpayers receive tax relief on contributions they make to workplace pensions. Tax relief is one of the biggest reasons why it pays to remain enrolled wherever possible, as it boosts your pension at no additional cost to you.
Auto-Enrolment and Self-Employed People
Self-employed workers are not automatically enrolled on a pension scheme because they don’t have an employer. However, they can still benefit from a private pension or SIPP and receive tax relief on their contributions.
Key points for self-employed savers:
- You choose your pension provider
- You control how much and how often you contribute
- You still receive tax relief like employees
- There are no employer contributions unless you employ yourself through a company payroll
Although you’re not included in auto-enrolment, building a pension remains one of the most tax-efficient ways to save for retirement if you are self-employed.
Common Auto-Enrolment Problems and How to Fix Them
Despite being straightforward in most cases, some workers experience the following issues:
You’re not enrolled but think you should be: Ask your employer in writing. If they fail to enrol you, you can report them to The Pensions Regulator.
Your pension contributions look incorrect: Speak to payroll. Errors can happen if your salary changes, your overtime is miscalculated, or your qualifying earnings aren’t updated
You’ve opted out accidentally: You can request to re-join at any time by informing your employer. They must accept this once every 12 months.
You don’t know who your provider is: Your employer must tell you. You can also check payslips for pension deductions and provider details.
You have multiple small pots: You may want to explore consolidation options to reduce fees and simplify management.
