Ask PayslipIQ · Last reviewed 2026-05-08
How does a workplace pension work?
Your employer enrols you into a pension scheme automatically once you meet the eligibility rules. A percentage of your qualifying earnings is paid into the scheme each pay period, with your employer adding their own contribution. The minimum total is currently 8% of qualifying earnings, of which at least 3% must come from the employer.
PayslipIQ provides educational information and estimated calculations only. It does not provide tax, legal, financial, payroll, accounting, pension, benefits or employment advice. Always verify your payslip, tax code, deductions and take-home pay with your employer's payroll department, HMRC, your pension provider, a qualified accountant, tax adviser or another appropriately qualified professional.
Most schemes use one of three tax-relief methods: net pay arrangement, relief at source, or salary sacrifice. The method affects how the contribution shows up on your payslip and how much tax relief you get.
Under net pay, your contribution is taken from gross pay before tax. Under relief at source, it is taken from net pay and the scheme adds basic-rate tax relief; higher rate taxpayers claim the extra through their tax return.
You can opt out within a month and get any contributions refunded, or change your contribution rate later. The /pension hub has a comparison of the three methods.
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Reviewed by PayslipIQ Editorial. Sources cited where applicable.
PayslipIQ provides educational information and estimated calculations only. It does not provide tax, legal, financial, payroll, accounting, pension, benefits or employment advice. Always verify your payslip, tax code, deductions and take-home pay with your employer's payroll department, HMRC, your pension provider, a qualified accountant, tax adviser or another appropriately qualified professional.