Employer contribution Question

sannytwist

Hi all, recently my wife started a new job with a salary of £25,000 before tax. Her company has a work pension which she can join. I think the employee/employer contribution is 5%/3% and is put in a SIPP . I know what a SIPP is but totally confused about the contribution %

I don't have a work pension myself. I'm still trying to get my head round this but its quite confusing.

JoeCrystal

It does exactly what it says on the tin.

£104.16 per month from the employee
£62.50 per month from the employer

So a total of £182.50 per month into her pension scheme (if the pension contribution applies to the gross salary) I am not sure why contribution percentages are so confusing. It is pretty straightforward

MallyGirl

some employers do seem to make it more complicated (and save themselves money) by only applying the percentages to the amount over some sort of base threshold

cloud_dog

JoeCrystal wrote: »

It does exactly what it says on the tin.

£104.16 per month from the employee
£62.50 per month from the employer

So a total of £182.50 per month into her pension scheme (if the pension contribution applies to the gross salary) I am not sure why contribution percentages are so confusing. It is pretty straightforward

I don't have a workplace DC pension but I don't believe the calculation may be as straightforward as that.

I think the calculation is based on the difference between the gross salary minus the lower level of qualifying earnings.

So (taking a stab), lower qualifying earnings is approx £6136pa; therefore £25k - £6136 = £18864.

£78.60 per month from the employee
£47.16 per month from the employer

Or is it just the employer percentage that is based on the above calculation but the employee is based on gross salary?

Perhaps not that clear/transparent. Caveat, I am no expert in this area so happy to be corrected.

JoeCrystal

You are correct, Cloud_dog. That is how it works out if someone was unlucky enough to work for an employer who takes advantage of qualifying earnings aspect of auto-enrollment.

david78

Usually:

3% employee contribution
5% employer contribution

Means:

employee has 3% of his/her pay deducted and paid into the pension.
employer pays a further 5% of his/her pay into the pension.

or if using Salary sacrifice.

employee gives up 3% of his/her pay, which the employer keeps.
employer pays 8% into his/her pension.


In either case 8% is paid in. Tax relief at the marginal rate is automatic.

cjv

Have a play around with this, if you have the information you need to fill it out:

https://www.moneyadviceservice.org.uk/en/tools/workplace-pension-contribution-calculator

It seems to be pretty accurate when I input my own figures

cloud_dog

david78 wrote: »

Usually:

3% employee contribution
5% employer contribution

Means:

employee has 3% of his/her pay deducted and paid into the pension.
employer pays a further 5% of his/her pay into the pension.

or if using Salary sacrifice.

employee gives up 3% of his/her pay, which the employer keeps.
employer pays 8% into his/her pension.


In either case 8% is paid in. Tax relief at the marginal rate is automatic.

Some places deduct/ignore the lower qualifying earnings when calculating the percentage amount, meaning a smaller amount than the percentage of your full salary is contributed.