Workplace Pension Explained — Auto-Enrolment, Contributions & What Happens When You Leave
Updated May 2026 · 2026/27 contribution rates · 10 min read
What is a workplace pension?
A workplace pension is a pension scheme set up by your employer. Instead of saving entirely on your own, you and your employer both contribute — plus you get tax relief from the government. It's one of the most efficient ways to build retirement savings, because you're essentially getting free money from your employer on top of your own contributions.
There are two main types:
Defined contribution (DC): You and your employer pay in a percentage of your salary. The pot grows through investment and is used to fund retirement. Almost all private sector workplace pensions set up since 2012 are DC.
Defined benefit (DB) / final salary: Your retirement income is calculated based on your salary and years of service. These are now rare in the private sector but remain common in public sector jobs (NHS, teachers, civil service).
This guide focuses on defined contribution pensions — the type most UK employees have today.
Auto-enrolment — who qualifies?
Since 2012, employers must automatically enrol eligible employees into a workplace pension. You're eligible if you are:
Aged 22 to State Pension age
Earning more than £10,000 per year (the auto-enrolment trigger)
Working in the UK
If you earn between £6,240 and £10,000, you can request to be enrolled even though it's not automatic — your employer must still contribute once you opt in. If you earn below £6,240, you can still opt in but your employer isn't obliged to contribute.
Auto-enrolment in practice
When you start a new job, your employer should enrol you within three months. You'll receive a letter confirming your enrolment, contributions, and opt-out window. If you haven't received one and you meet the criteria, contact your HR or payroll team.
Contribution rates and qualifying earnings
The minimum contributions set by law since April 2019 are:
Who pays
Minimum (2026/27)
Notes
You (employee)
5%
Includes 1% basic-rate tax relief
Your employer
3%
Must pay this at minimum
Total combined
8%
Minimum required by law
Many employers offer more. Some match your contributions up to 5% or 6% — meaning if you contribute 5%, they also put in 5%. Always find out your employer's matching policy, because failing to contribute enough to maximise matching is leaving free money behind.
What are qualifying earnings?
Contributions aren't calculated on your full salary. They're calculated on your qualifying earnings — the band between £6,240 and £50,270 (2026/27 thresholds).
Total paid into Hannah's pension: £2,061/year (£172/month)
Note: some employers calculate contributions on total salary, not qualifying earnings — always check your payslip.
Check your payslip
Your pension deduction should appear on your payslip. If your employer uses a net pay arrangement, contributions come out before tax is calculated — even more efficient. Use our Pension Calculator to project how contributions grow over time.
How tax relief is added
One of the most valuable aspects of pension saving is tax relief. For every £80 you contribute as a basic-rate taxpayer, the government tops up to £100. Higher-rate taxpayers can reclaim even more.
Tax rate
You contribute
Tax relief added
Total in pension
Basic rate (20%)
£80
£20
£100
Higher rate (40%)
£60
£40
£100
Additional rate (45%)
£55
£45
£100
How tax relief is applied depends on your scheme:
Relief at source: You contribute from net (after-tax) pay, and the pension provider claims 20% basic-rate relief and adds it to your pot. Higher-rate taxpayers must claim the extra 20% back via Self Assessment.
Net pay arrangement: Contributions come out of gross pay before tax is calculated — you automatically get full relief at your marginal rate.
Salary sacrifice: You agree to reduce your salary in exchange for pension contributions. Saves income tax and National Insurance. See our Salary Sacrifice Pension guide for full details.
Your employer chooses which pension scheme to use. The main options are:
NEST
0.3% annual + 1.8% on contributions
Government-backed. Default for many small employers. Reliable, low-cost, well-governed. No minimum earnings to join.
The People's Pension
0.5% annual (capped)
Large master trust used by major UK employers. Simple fund range. Good for employees who move jobs frequently.
Smart Pension
0.3% annual
App-based, popular with tech employers. Clear digital interface, flexible fund options.
Employer-run schemes
Varies
Large employers (HSBC, NHS, BT) often run their own schemes with lower fees or better fund ranges. Check your employee handbook.
NOW: Pensions
0.3% annual + £1.50/month
Common for blue-collar and logistics employers. Simple investment strategy, widely used.
All master trusts must be authorised by the Pensions Regulator, so your money is protected regardless of which scheme your employer uses. The key differences are fee structures and investment fund choices.
Default investment funds
Most workplace pension members never change their investment fund — they stay in the default fund. Default funds are usually lifestyled, meaning they start growth-focused and gradually shift to lower-risk investments as you approach retirement. This is sensible for most people, but worth reviewing if you're more than 20 years from retirement — the growth phase may warrant a higher equity allocation.
What happens when you change jobs?
Your pension pot belongs to you, not your employer. When you leave a job, your pot stays with the same provider, invested and growing, until you choose to move it or draw from it.
Your three options
Leave it where it is: The simplest option. Your pot continues to grow. You'll still receive statements and can track it via your online account. The downside: if you change jobs frequently, you may end up with many small pots spread across different providers.
Transfer to your new employer's scheme: Consolidates your pension into one pot. Your new employer's scheme may have different fund choices or fees — compare before transferring.
Transfer to a personal pension (SIPP): Gives you more investment choice and control. Good option if you're self-employed, taking a career break, or want to consolidate many small pots. See our Private Pension Explained guide for detail on SIPPs.
Important: Check for defined benefit or guaranteed annuity rates
If you have an older defined benefit (final salary) scheme, or a pension with a guaranteed annuity rate, do not transfer without taking regulated financial advice. These guarantees can be extremely valuable and are typically lost on transfer.
How to transfer a pension
Contact your old provider and request the transfer value and any exit charges
Provide your new provider's details (scheme name, address, reference number)
Complete a transfer request form with the new provider
The transfer typically takes 2–8 weeks
There are no tax implications when transferring between registered UK pension schemes — it's simply moving a pot from one provider to another.
Example — pension pots over a career
David works for four employers over 25 years, accumulating four separate pension pots:
Employer A (2001–2008): £18,000 in NEST
Employer B (2008–2015): £42,000 in The People's Pension
Employer C (2015–2020): £35,000 in Smart Pension
Employer D (2020–present): £28,000 in NOW: Pensions
Total: £123,000 across 4 providers. Consolidating into a SIPP lets David pick his investments, reduce paperwork, and potentially pay lower fees — all without tax consequences.
Finding lost pension pots
The UK has an estimated £27 billion in lost or forgotten pension pots. If you've changed jobs and can't remember which provider holds one of your pensions, you have two options:
Contact your former employer's HR or payroll team — they should have records of which scheme you were enrolled in
Use the government's Pension Tracing Service — a free database at gov.uk/find-pension-contact-details that can locate schemes by employer name
Once located, request the current value and consider consolidating into your current scheme or a SIPP if the pot is small and the fees are high relative to the balance.
Online pension dashboards coming
The government is phasing in a compulsory pension dashboard system that will let individuals see all their pensions in one place. Rollout continues into 2027. Until then, the Pension Tracing Service is your best tool.
Should you opt out of auto-enrolment?
Opting out of your workplace pension is almost always a financial mistake. Here's why:
What you lose by opting out
Your employer's contributions: If your employer contributes 3–5% of your salary and you opt out, that money disappears. On a £35,000 salary it could be worth £800–£1,400/year — entirely free.
Government tax relief: You forgo a 25%–67% top-up on every pound you contribute.
Compound growth over decades: Small amounts today become large amounts in 30 years.
Cost of opting out — a worked example
Emma earns £28,000. She opts out to have an extra £72/month in take-home pay.
What she gives up:
Her contribution (5%): £573/year → only costs her ~£458 after tax relief
Her employer's contribution (3%): £344/year — completely lost
Total annual pension input lost: £917
Over 35 years at 6% growth, that £917/year compounds to approximately £108,000 in today's money. Emma's extra take-home was £72/month — but the lifetime cost is far higher.
When opting out might make sense
In very limited circumstances — such as extreme short-term financial hardship or if you're close to the Lifetime Allowance (now abolished) — opting out could be considered. But for most people, especially younger workers, it's one of the worst financial decisions possible.
Your employer must re-enrol you every three years. If you've previously opted out, re-enrolment gives you another opportunity to start contributing again.
See how your workplace pension could grow
Enter your salary, contribution rate and employer match to project your retirement pot.
The minimum 8% combined contribution is unlikely to be enough for a comfortable retirement. Most financial planners recommend aiming for a total contribution of 12–15% (combined employee and employer). To understand how different contribution rates affect your eventual pot, use our Pension Calculator and read our guide on How Much Pension You Should Have by 30, 40 and 50.
Frequently Asked Questions
How much does my employer have to contribute to my workplace pension?
By law, employers must contribute at least 3% of your qualifying earnings. Combined with your minimum 5% contribution, the total minimum is 8%. Many employers contribute more — some match employee contributions up to 5% or 6%. Always check your employer's matching policy to avoid leaving free contributions unclaimed.
What happens to my workplace pension when I change jobs?
Your pension pot stays where it is — it belongs to you, not your employer. Contributions stop, but the pot stays invested and grows. You can leave it, transfer it to your new employer's scheme, or consolidate it into a personal pension (SIPP). There are no tax consequences when transferring between registered UK pension schemes.
Can I opt out of auto-enrolment?
Yes. You have a one-month window from enrolment to opt out and receive a full refund of contributions. Outside that window, you can stop contributing but won't get a refund. Your employer must re-enrol you every three years. Opting out means forfeiting your employer's contributions and tax relief — a significant long-term financial cost.
What is qualifying earnings for pension auto-enrolment?
Qualifying earnings are the band between £6,240 and £50,270 per year (2026/27). Contributions are calculated on this band, not your full salary. So if you earn £30,000, qualifying earnings are £23,760. Some employers are more generous and calculate contributions on total salary — check your payslip.
Is NEST a good pension scheme?
NEST is a well-governed, low-cost pension scheme backed by the government. It charges 0.3% annual management fee plus a 1.8% charge on contributions. It's perfectly adequate for most employees, with sensible default funds and good regulatory oversight. If your employer uses NEST, there's no reason to be concerned about its quality or security.