A workplace pension is a savings pot for your own retirement — not pay for current pensioners. Each month a small slice of your salary (typically 5–8%) is set aside in a fund you'll draw from later in life (from age 55+, currently rising to 57).
Who pays in? Both you and your employer. UK law (auto-enrolment, phased in 2012–2018) requires employers to automatically sign up most staff aged 22+ earning above £10,000/year. Once enrolled:
- Your contribution (typically 5% of qualifying earnings) is deducted from your salary every payday — you'll see it on your payslip.
- Your employer adds at least 3% on top (often more) — this is free money you'd lose if you opted out.
- The government tops up your part with tax relief, applied through one of the three schemes below.
You can opt out, but most people don't because of the employer match and tax relief. If you don't pay into a workplace pension at all, leave this set to None. Otherwise enter your % contribution and pick the scheme type your employer uses — the three differ only in when the tax break is given:
- Relief at Source — common for NEST and group personal pensions. Contribution is taken from your net pay; the provider claims back basic-rate (20%) relief on your behalf. Higher-rate taxpayers reclaim the rest via Self Assessment.
- Net Pay arrangement — typical for occupational schemes set up by larger employers. Contribution is taken from gross pay before income tax (so tax is on a lower figure), but NI is still on full gross.
- Salary Sacrifice — you formally agree a lower salary in exchange for the employer paying into your pension. Both income tax and NI are computed on the reduced salary — best take-home, but it lowers your statutory pay base (e.g. for SMP).
Not sure which one applies? Look at your payslip: Salary Sacrifice usually shows your gross already reduced; Net Pay shows the contribution as a pre-tax deduction; Relief at Source shows it as a post-tax deduction. If still unclear, ask HR or your pension provider.