Understanding how much auto-enrolment is going to cost your business and employees is important.

So we’ve covered both contribution rates and fees. This makes sure there are no surprises and you know all you need to.

A cost worth paying

Providing your employees with a pension scheme is a great way to help them with their financial well-being. The contributions you both make will help them save towards the future they deserve, giving them peace of mind.

What will auto-enrolment cost your business?

Providing your employees with a pension scheme does come at a cost to your business. To make things simple think of the cost in two parts, contributions and fees.


Contributions are the payments both you and your employees make into the pension. There are different minimums that you need to pay in:

Minimum contributions

Contribution rates may go up over time. Currently, the minimum total contribution is 9%. We've used the basic pay definition to show the different minimums over the past 3 years:

bar graph showing that the total minimum contribution is now 9%

The minimums both you and your employees pay in to the pension scheme can differ depending on the pensionable pay definition you use.

Employer minimum 4%
Employee* 5%
Total minimum contribution 9%
Employer minimum 3%
Employee* 4%
Total minimum contribution 7%
Employer minimum 3%
Employee* 5%
Total minimum contribution 8%
Employer minimum 3%
Employee** 5%
Total minimum contribution 8%

*Qualifying band earnings for tax year 2020/2021 are £6,240 - £50,000.

**An employee minimum applies if the total minimum is not covered by the employer. The employee minimum is the difference between the total and employer contribution rates.

  • Both you and your employees can choose to pay more than the minimums
  • You can choose to cover the total minimum

Remember, both you and your employees can pay in more than the minimum contribution amount. Even making a small increase can make a big difference to the amount of money they could get back in their retirement. A pension is normally a long term investment and, as with any investment, its value can go down as well as up and may be worth less than was paid in.

Making employee contributions

There are three ways you can make payments, by deducting the employee contributions from their pay, into an employee’s pension. These are determined in part by the type of pension scheme you are using. They are:

  • Deduction from after-tax earnings
  • Deduction from pre-tax earnings
  • Salary sacrifice

After tax

Firstly, let’s look at payments made from after-tax earnings. This way the pension payments are deducted from an employee’s after-tax earnings with your employer contribution added on. And, basic rate tax relief is then added on from the government.

Example: For every £80 your employee pays in, HMRC adds another £20 - so in total, £100 will go into their pension.

Taken from earnings AFTER income tax and NI have been calculated


Money notes
Pension payment


Tax relief

If your employees are higher rate or additional rate taxpayers, they can claim additional relief from HMRC.

If they’re a higher rate taxpayer, for every £80 they pay in, HMRC pays £20 in to their pension and reduces the tax they pay overall by another £20. If they’re an additional rate taxpayer, their tax will be reduced by £25. Find out more about how tax rates can differ for Scotland and Wales on gov.uk.


Your employee’s payments will be deducted from their salary after National Insurance has been calculated, but before income tax, which means they’ll pay Income Tax on a lower amount. It also means that their personal tax rate position is taken into account immediately.

Example: If they’re a basic rate taxpayer and they want to make payments of £100 a month, £100 is taken from their salary before their tax liability is calculated. A basic-rate taxpayer can normally expect to pay £20 less, a higher rate taxpayer £40 less and an additional rate taxpayer £45 less in income tax as a result, although the tax benefit could vary depending on their personal circumstances.

Taken from earnings after NI but before income tax has been calculated


Money notes
Pension payment


A lower amount on which they pay tax

Note – if they do not currently pay tax, it may not be the best option for them.

Salary sacrifice

The third payment method is salary sacrifice (sometimes called salary exchange). It means your employees agree to give up part of their pre-tax salary in exchange for a payment into their pension, equal to the pre-tax pension contribution they would normally make. You then add your employer payment and the total is paid into their pension. The full payment is referred to and treated as an employer payment.

Example: Let's assume salary is £25,000 and a contribution rate of 5% of your employee's basic pensionable salary as a pension contribution. But instead of paying £1,250 into their pension, they exchange £1,250 of their gross salary. Because they pay less NI on their reduced salary, their take home pay is higher.

Taken from earnings BEFORE tax & NI


Money notes
Pension payment


A lower amount on which they pay tax and NI

Salary sacrifice may not be right for some employees. It's a change to their terms of employment contract and could affect their state benefits, other company benefits or their ability to borrow. If they do not currently pay tax, it may not be the best option for them.

Find out more about how tax rates can differ on gov.uk.

More on salary sacrifice

The main benefit for you is saving National Insurance Contributions (NICs). You pay NICs on the employees' salaries but not for pension payments due to salary sacrifice. The higher the salary, the more you pay in NICs so reducing the employees' salaries in exchange for pension payments would mean less NICs for you to pay.

Like you, employees pay NICs on their salary, so the lower their salaries the lower their NICs will be. This is in addition to not paying income tax on the amount of salary sacrificed and this should produce an overall saving for employees, dependant on their individual circumstances.

Yes. Employees will have a contractual entitlement to their current salary. If it is reduced as part of a salary sacrifice arrangement for pension payments then this amounts to a change in their contractual terms. Doing this without the employees' explicit agreement could amount to a breach of contract.

In practice employers can automatically include employees in salary sacrifice while allowing them to opt out and make payments from after tax earnings or from pre-tax earnings.

HMRC permits salary sacrifice.
You can find out more information about this on the HMRC website.

Changes might have to be made to the pension scheme's rules in order to implement salary sacrifice so the trustees' agreement might be required. However, that agreement should be secured on the basis that employees' benefits from the scheme are not affected by salary sacrifice payments.

Yes, bonus payments can also be sacrificed in return for pension payments from the employer.


This is the amount we charge for an auto-enrolment pension with Standard Life. This will depend on what type of pension you choose with us, and what types of investments you choose.


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