Employer Pension Contributions in 2026: Minimums, Earnings Bases, Tax Relief and What They Really Cost

Every UK employer with staff earning over the automatic enrolment trigger has to pay into a workplace pension. The legal minimum is small, but the rules around it are not: which pay the percentage applies to, how contributions are taxed, when they must reach the scheme, and how a company can use them to pay its own directors. This guide is for small business owners, payroll managers and directors working out what pension contributions cost in 2026. It covers the minimum, the alternative earnings bases, why a pound of pension is cheaper than a pound of salary, Corporation Tax relief and the spreading rules, and the changes coming. For who must be enrolled and when, see our automatic enrolment guide.

Quick answer

The minimum employer contribution is 3% of qualifying earnings (pay between £6,240 and £50,270 in 2026-27), with 8% in total once the employee's share is added. Employer contributions to a registered scheme are free of income tax and National Insurance for both sides, and a company can usually deduct them from profits in the period they're paid.

• Schemes can instead use basic pay (4% employer, 9% total) or all earnings (3% employer, 7% total)

• No employer National Insurance at 15%, unlike salary

• Contributions count towards the employee's £60,000 annual allowance

• Director contributions are deductible if the overall pay package is commercially reasonable

• Deducted contributions must reach the scheme by the 22nd of the following month

The legal minimum: 3% of qualifying earnings

Automatic enrolment law sets a floor for defined contribution schemes. For each eligible jobholder, the employer must pay at least 3% of their qualifying earnings, and the total going in, employer plus employee plus tax relief, must be at least 8%. The employee's share is normally 5%, but if the employer pays more, the employee can pay less.

Qualifying earnings are the slice of pay between a lower and upper limit, worked out for each pay reference period. For 2026-27 the annual band is £6,240 to £50,270, which is £520 a month to £4,189 a month for monthly payroll. They include salary and wages, overtime, bonuses, commission, statutory sick pay and statutory family pay such as maternity and paternity pay. Holiday pay counts too.

The band means the first £6,240 of pay attracts no minimum contribution, and anything above £50,270 is ignored. That keeps costs down for the employer but makes the effective rate on someone's whole salary lower than 3%. Someone earning £25,000 gets an employer minimum of £562.80, which is about 2.25% of their salary.

Employer pension numbers for 2026-27

3%

Employer minimum

of qualifying earnings

8%

Total minimum

employer + employee + relief

£6,240–£50,270

Qualifying earnings band

£10,000

Auto-enrolment trigger

age 22 to State Pension age

Other earnings bases: certification sets

Many schemes don't use qualifying earnings at all. Payroll is often simpler if contributions are a percentage of basic salary, or of everything someone is paid, starting from the first pound. The law allows this if the employer certifies that the scheme meets one of three alternative tests. The Pensions Regulator's guidance sets them out:

The higher percentages for set 1 compensate for leaving out overtime and bonuses. Set 2 works for workforces where basic pay is nearly everything people earn. Set 3 has a lower total because it applies to all pay, including the first £6,240 that qualifying earnings ignore.

Worked example. Amira earns a basic £28,000 with no extras. On qualifying earnings, the employer minimum is 3% of £21,760, which is £652.80. Under set 1 it's 4% of £28,000, £1,120. Under set 3 it's 3% of £28,000, £840, with total contributions of 7%, or £1,960. Set 3 costs the employer more than the default but is simpler, and many employees prefer seeing a percentage of their whole salary.

Certification covers a set certification period and has to be renewed, and the employer must check that each worker received at least the minimum over the certification period. Where someone falls short, for example because their overtime was unusually high, the employer has to top up. Most master trusts handle this through their earnings basis settings, but the legal duty stays with the employer.

Why a pound of pension is cheaper than a pound of salary

Employer pension contributions get three tax advantages at once:

1. No income tax for the employee. Section 308 of the Income Tax (Earnings and Pensions) Act 2003 says employer contributions to a registered pension scheme for the employee aren't taxed as earnings. They don't go on a P11D or through payroll as a benefit.
2. No National Insurance for either side. Employer contributions to a registered scheme aren't earnings for National Insurance. The employer saves 15% and the employee saves 8% or 2% compared with the same money paid as salary.
3. A deduction for the business. A company or unincorporated business can usually deduct the contributions from its profits when it calculates Corporation Tax or income tax.

Worked example. A limited company with profits taxed at the small profits rate of 19% wants to put an extra £1,000 towards an employee earning £35,000.

The bonus costs the company more and delivers less. The pension contribution isn't accessible until the normal minimum pension age, 55 rising to 57 in 2028, so it isn't a substitute for take-home pay, but for long-term reward it's the most tax-efficient form of pay available. That's also the logic behind salary sacrifice, where the employee swaps salary for extra employer contributions.

The National Insurance advantage on salary sacrifice is being trimmed. From 6 April 2029, only the first £2,000 a year of pension contributions made through sacrifice will be free of National Insurance. GOV.UK's summary confirms that ordinary employer contributions, not funded by a sacrifice, will stay free of National Insurance. Employers with generous sacrifice schemes may restructure, paying more as straightforward employer contributions instead.

Corporation Tax relief: the rules that catch people out

HMRC's Pensions Tax Manual sets out how an employer gets relief. The contribution is treated as an expense of the trade, deducted when calculating taxable profits, provided it's incurred wholly and exclusively for the business. Three details matter:

Relief only when paid. A company gets the deduction in the accounting period in which the contribution is actually paid, not when it's accrued in the accounts. If your year ends on 31 March and you accrue March's contributions but pay them on 19 April, the deduction falls into the next year. For a one-off contribution meant to reduce this year's profits, the money must leave the bank before the year end.

Spreading for big jumps. If contributions in the current period are more than 210% of the previous period's, and the excess over 110% of the previous period is at least £500,000, relief on that excess is spread. An excess under £1 million is spread over two years, £1 million to under £2 million over three, and £2 million or more over four. Contributions to fund cost-of-living increases for pensions in payment, and those for new members joining in the period, are left out of the test.

How relief on a large excess is spread (PTM043400)

Excess over 110% of last period's contributions	Relief spread over
Under £500,000	No spreading: all relief this period
£500,000 to under £1 million	2 periods, half each
£1 million to under £2 million	3 periods, a third each
£2 million or more	4 periods, a quarter each

Under £500,000

Relief spread over

No spreading: all relief this period

£500,000 to under £1 million

Relief spread over

2 periods, half each

£1 million to under £2 million

Relief spread over

3 periods, a third each

£2 million or more

Relief spread over

4 periods, a quarter each

For example, a company paid £200,000 last year and pays £800,000 this year. That's more than 210% of £200,000 (£420,000), so the test is met. The excess over 110% (£220,000) is £580,000, which is above the threshold, so it's spread over two years: this year the company deducts £220,000 plus £290,000, and next year the other £290,000. Small employers rarely hit this, but owner-managers making a large one-off contribution after a good year can.

Wholly and exclusively. For employees at arm's length, HMRC rarely questions pension contributions: they're part of the pay package. For directors and their relatives, it looks harder.

Contributions for directors and family members

Employer pension contributions are one of the most tax-efficient ways for a company owner to take value out of the business. A director on a small salary can have the company pay a much larger sum into their pension, because the annual allowance for employer contributions isn't limited by the director's earnings. Only personal contributions are limited to the individual's relevant UK earnings.

HMRC's Business Income Manual (BIM46035) says pension contributions for a director are allowable unless there is a non-trade purpose. HMRC accepts them where the director's whole remuneration package, salary, bonus, benefits and pension together, is comparable with what an unconnected person would be paid for work of similar value. It looks at the whole package rather than the pension in isolation, and doesn't challenge a deduction just because one year's contribution is high.

Worked example. Jess owns and runs a design agency with profits of around £300,000, taxed at the main rate of 25%. She takes a salary of £12,570 and dividends. The company pays £40,000 into her pension. It saves £10,000 of Corporation Tax, pays no National Insurance, and Jess pays no income tax on the contribution. The £40,000 counts towards her £60,000 annual allowance, and she can use unused allowance carried forward from the previous three tax years if she has been a scheme member. Given her role and the profits she generates, HMRC would be unlikely to argue that the package is excessive. Our director salary vs dividends guide compares the alternatives.

The picture changes for relatives. Since 2013-14, a contribution paid into the pension of a family or household member who is not themselves an employee isn't made "in respect of" the employee, so the section 308 exemption doesn't apply and HMRC's Employment Income Manual says it's taxed as the employee's earnings. If a spouse does work for the company, contributions for them are deductible only if their total package is reasonable for the work they actually do. Paying £40,000 into the pension of a spouse who answers the phone for two hours a week invites a challenge.

The employee's tax relief and how it interacts

Employer contributions go into the pension gross, but the employee's share is handled in one of two ways, and the choice affects payroll. Under a net pay arrangement, the employee's contribution is deducted before income tax, so they get relief automatically at their top rate, but not on National Insurance. Under relief at source, payroll deducts 80% of the employee's contribution from net pay and the provider claims the 20% basic-rate relief from HMRC; higher-rate taxpayers claim the rest themselves.

For the employer, the difference shows up in the numbers you deduct. Using qualifying earnings of £21,760, a 5% employee share is £1,088. Under relief at source you deduct £870.40 from net pay and the provider adds £217.60. Under net pay you deduct the full £1,088 from gross pay before tax. Either way, your 3% is £652.80. The pension tax relief guide explains the employee side in more detail, including the annual allowance taper for high earners.

Paying contributions on time

Pension contributions deducted from workers' pay must reach the scheme by the 22nd of the following month. Your own employer contributions follow the schedule agreed with the provider, and for most master trusts that's the same date. Paying late isn't a minor admin slip: deductions from pay that don't reach the scheme are the worker's money.

Providers and trustees monitor payments and are expected to report contributions to The Pensions Regulator once they're more than 90 days late, or earlier where a failure looks significant. The regulator can issue compliance notices and unpaid contributions notices, then fixed and escalating penalties. The automatic enrolment guide sets out the penalty bands and how re-enrolment and declarations of compliance work.

Setting the right employer contribution

1. 1

   Decide the earnings basis

   Qualifying earnings keeps the legal minimum lowest. Basic pay or total pay is simpler to explain but must meet the certification percentages.

2. 2

   Choose your rate

   3% is the floor. Many employers offer more, or match employee contributions up to a cap.

   Tip: A matching scheme, such as up to 5% matched, rewards staff who save more without raising costs for everyone.

3. 3

   Consider salary sacrifice

   It cuts National Insurance for both sides, but plan for the £2,000 a year cap from 6 April 2029 and protect minimum wage.

4. 4

   Set up payroll and payments

   Configure the basis in payroll software, test the first submission, and pay by the 22nd of the following month.

5. 5

   Review every April

   Thresholds can change each tax year, and certification must be renewed.

Common mistakes

The errors that cost employers money tend to repeat:

• Applying the percentage to the wrong pay. Leaving overtime or bonuses out of qualifying earnings, or applying 3% to basic pay without meeting the set 1 or set 2 conditions. The fix is to recalculate and pay arrears with any lost investment growth.
• Accruing a year-end contribution but paying it late, so the Corporation Tax deduction slips into the next year.
• Treating contributions for a non-employee relative as tax-free. They're taxable on the employee and not deductible as pension costs of the business.
• Missing the deadline for paying deducted contributions, which can lead to reports to the regulator.
• Ignoring the annual allowance for well-paid directors. Contributions above £60,000, after any carry forward, or above the tapered allowance for high earners, create a tax charge for the individual, not the company.

Changes ahead

The 3% and 8% minimums have applied since April 2019. The Pensions Commission, revived in July 2025, published an interim report on 19 May 2026 and plans a final report in spring 2027. It's looking at whether retirement savings are adequate, which may lead to recommendations on higher contributions or a wider earnings base in a later parliament.

The Pensions (Extension of Automatic Enrolment) Act 2023 gave the government powers to lower the enrolment age from 22 to 18 and to remove the lower limit of qualifying earnings, so contributions would apply from the first pound. Those changes need regulations, and no start date had been set when this page was checked. If they are, the cost for each employee rises by 3% of the £6,240 that's currently excluded: £187.20 a year per full-time worker at today's thresholds.

The nearer change is the 6 April 2029 salary sacrifice cap. Employers using sacrifice for large contributions should model the extra National Insurance on contributions above £2,000 a year.

Official links

• Workplace pensions for employersDuties, schemes and contributions
• Automatic enrolment earnings thresholdsCurrent band and trigger
• Certification for DC schemes (TPR appendix B)Sets 1, 2 and 3
• Employer tax relief (PTM043100)Deduction when paid
• Spreading rules (PTM043400)Large increases
• Director contributions (BIM46035)Wholly and exclusively

What to do next

Check which earnings basis your scheme uses and whether your payroll applies it to the right pay elements, then compare the cost of your current contribution with a modest increase paid as employer pension rather than salary. If you run your own company, look at your remuneration mix for the year before the accounting period ends, and make sure any one-off contribution is paid, not just accrued. Our employer National Insurance guide shows the 15% cost you avoid, and the compound interest calculator shows what a few extra pounds a month grows to over a working life.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is the minimum employer pension contribution in the UK?

For automatic enrolment, the employer must pay at least 3% of an eligible jobholder's qualifying earnings, with a total of at least 8% when the employee's share is added. In 2026-27 qualifying earnings are pay between £6,240 and £50,270 a year. Schemes that use basic pay or total pay instead can be certified, but some of those routes need higher percentages, such as 4% from the employer on basic pay.

Do employers pay National Insurance on pension contributions?

No. Employer contributions to a registered pension scheme are not earnings for National Insurance, so neither employer nor employee National Insurance is due on them. That's why salary sacrifice works: pay given up and paid in as an employer contribution escapes National Insurance. From April 2029, sacrificed pension above £2,000 a year will attract National Insurance, but ordinary employer contributions will stay exempt.

Are employer pension contributions taxable for the employee?

No. Under section 308 of ITEPA 2003, employer contributions to a registered pension scheme for the employee are not taxed as earnings and don't go on a P11D. They do count towards the employee's pension annual allowance of £60,000, along with their own contributions, so very large contributions can create an annual allowance charge.

Can a company claim tax relief on pension contributions for directors?

Usually, yes. The company deducts contributions it actually pays in the accounting period, provided they are wholly and exclusively for the business. HMRC accepts this where the director's total pay package, including the pension, is comparable to what an unconnected person would be paid for similar work. Very large contributions compared with the previous year may have their relief spread over up to four years.

When do employer pension contributions have to be paid?

Contributions deducted from pay must reach the pension scheme by the 22nd of the month after deduction. Late payments are reported to The Pensions Regulator by providers when they are more than 90 days overdue, and the employer can face compliance notices and penalties.

Can an employer pay more than 3%?

Yes, and many do as a recruitment benefit. There is no upper limit on what an employer can pay, but contributions above the annual allowance trigger a tax charge for the employee, and contributions for directors must be justifiable as part of a commercial pay package. If the employer pays more than the minimum, the employee can pay less, as long as the total reaches 8%.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 13 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.4. Pension schemes under the employer duties – appendix B transcript — The Pensions Regulator · accessed 13 October 2026
2. 2.Automatic enrolment earnings thresholds — The Pensions Regulator · accessed 13 October 2026
3. 3.PTM043100 – Contributions: tax relief for employers: introduction — HMRC · accessed 13 October 2026
4. 4.PTM043400 – Contributions: tax relief for employers: spreading — HMRC · accessed 13 October 2026
5. 5.BIM46035 – Pension schemes: wholly and exclusively: controlling directors and shareholders — HMRC · accessed 13 October 2026
6. 6.EIM01570 – Registered pension schemes: employer's contributions — HMRC · accessed 13 October 2026
7. 7.Changes to salary sacrifice for pensions from April 2029 — HM Treasury / HMRC · accessed 13 October 2026
8. 8.Pensions 2050: evidence and future priorities – interim report — Department for Work and Pensions · accessed 13 October 2026