Understanding pension contributions
How to read pension deductions on your payslip.
Pension contributions and how they appear on your payslip
If you’re saving into a pension scheme through your workplace, the contributions you’re making to your pension pot will usually be visible on your payslip. But this information can sometimes seem confusing and difficult to understand.
Our guide will help you get to grips with reading your payslip and show you how and why pension contributions appear on this.
How your pension contributions are worked out
You may have looked at your payslip and wondered exactly how your monthly pension contributions are calculated. This will depend on the amount of contributions you’ve agreed to make to your pension pot, and the amount of ‘tax relief’ you receive.
What are minimum contributions?
If you’ve been auto-enrolled into a workplace pension scheme, then there’s a minimum level of contributions that must go towards your pension. This is made up of contributions from you (the employee) taken from your earnings and your employer’s contributions.
For most people, the minimum pension contribution is 8% of their qualifying earnings. Your employer must contribute a minimum amount of 3% towards this. If you’re able to, you can also ask your employer to increase the level of contributions taken from your salary – which can help grow your pension pot.
The amount you contribute depends on a number of factors – you can find out more on the government’s website about what you, your employer and the government pay towards your workplace pension.
What is tax relief?
Tax relief is the government’s way of helping you save more for retirement. Every time you pay into your pension, some of the tax that would usually be taken on your earnings is added to your pension pot.
There are 2 ways pension tax relief can be claimed – net pay arrangement (where contributions are taken from your gross salary before tax) and relief at source (where contributions are taken from your net salary after tax).
You can read our article on tax relief to find out more.
Keeping track of your pension contributions
Staying up to date with your pension contributions is simple with The People’s Pension. You can check how much you’ve put into your pot at any time by logging into your Online Account.
We’ll also send you an annual statement in your Online Account showing you how much your pension is worth. This will help give you a better idea of the amount of savings you’ll have when you retire.