Employer pension contributions

A tax-efficient way to grow your pension

Employer contributions are payments your employer makes into your pension – and they can be highly tax efficient. When your employer contributes directly to your SIPP, not only can you save tax, but your employer can too. Contributions can be made regularly, or as one-off payments.

How you can benefit from employer contributions

If your employer pays a chunk of your salary directly into your pension, you can save tax. This is known as ‘salary sacrifice’, and many employers offer it. Here’s how it works.

When you make a SIPP contribution from your taxed income, we’ll claim 20% tax relief and pay it into your account. And if you’re a higher, or additional, rate tax payer, you can reclaim further income tax by completing your annual tax return. However, you will also have paid national insurance at 13.25% on the income being used to make the contribution and that cannot be reclaimed and may limit the amount available to make your contribution.

If your employer makes the same contribution from your gross salary with salary sacrifice, it’s a different story. There is no national insurance to pay. The result? More money for you to save into your pension – as this case study shows:

Case study: Harry can grow his pension pot faster if his employer contributes to it


Harry earns £35,000 a year. He’s just had a pay rise of £1,200 a year, and wants to save all this additional pay into a SIPP to boost his retirement savings.

In the first month he earns an extra £100 gross. On this he pays £20 income tax and £13.25 national insurance. He then pays all of his additional net pay of £66.75 (£100 less £20 and £13.25) into his SIPP. We then claim tax relief at 20%, which is £17, and pay it into his SIPP. Harry ends up with £83.44 saved towards his retirement.

Alternatively, Harry could ask his employer to treat his additional pay as a salary sacrifice and make a contribution of £100 a month directly into his SIPP. If the employer is willing to do this, we wouldn’t be able to reclaim any tax (as the contribution would be gross), but he would end up with £100 in his pension.

So, by receiving employer pension contributions Harry can save £100 a month or £1,200 a year towards his pension - against saving just £1,000.28 a year when making personal contributions. Receiving employer contributions grows his pension by an extra £199.72 a year.

Another perk of salary sacrifice is that your employer doesn't have to pay employer's national insurance on the part of your salary they pay into your pension – and they may choose to pass some of this benefit onto you.

But not every employer offers salary sacrifice, so you need to check. You should be aware that tax rules can change, and benefits depend on your individual circumstances.

How does your employer benefit?

When your employer contributes to your pension, it’s normally treated as an allowable expense for corporation tax – just like a salary payment. But unlike a salary payment, pension contributions aren’t liable for employer’s national insurance (of up to 15.05%).

If you’re a partnership or sole trader, pension contributions for your employees can be treated as a business expense and set off against your income tax liability – so they’re also not subject to national insurance.

How much can my employer contribute?

Employer pension contributions count towards your overall annual allowance, which is normally £40,000. This is often lower, however, if you have income of more than £240,000, or you’ve accessed your pension (see Contributing to your pension for more details). But unlike personal contributions, employer contributions aren’t limited by the amount you earn.

It’s important to keep in mind that the contributions must be commercially reasonable for the business. While most pension contributions won’t be challenged, HMRC may question the payments if they find them excessive. If you’re not sure about your situation, please consult your financial adviser or accountant.

Can I make employer contributions if I’m self-employed?

Yes, if you own your business and it’s a limited company, you can pay into your pension via employer contributions. As employer contributions are deducted from your total profits, they won’t be liable for corporation tax. Just remember, employer contributions will also count towards your annual allowance. Read more about pensions for the self-employed.

How to set up employer pension contributions

Once you’ve opened your AJ Bell Youinvest SIPP, your employer can make contributions by cheque or direct debit.

To set up regular contributions from your employer, just ask them to complete our SIPP employer Direct Debit form.

To make a one-off contribution, complete our SIPP additional contribution form and send it to us with a cheque from your employer.

If you need any help setting up an employer contribution, please contact us.

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