Answers · UK 2025/26

Do I pay tax on employer pension contributions?

No. Employer pension contributions are completely tax-free for the employee — no Income Tax, no NI, no benefit-in-kind charge — as long as the total annual allowance (£60,000 in 2025/26 across all your pensions) is not breached. Employers also save 15% Class 1A NI on the contribution.

Last updated: 16 May 2026Last reviewed: 16 May 2026How we verify

Full answer

Workplace pension contributions paid by the employer (whether under auto-enrolment, salary sacrifice or matched contributions) are not treated as taxable earnings. They land in your pension scheme gross and grow tax free. The only relevant cap is the £60,000 annual allowance — covering employee contributions (gross of relief), employer contributions and any third-party top-ups combined. Exceed it and you pay an annual-allowance charge at your marginal Income Tax rate on the excess. The allowance tapers down by £1 for every £2 of adjusted income above £260,000, to a floor of £10,000 once adjusted income reaches £360,000. Unused allowance from the previous three tax years can be carried forward if you were a member of a registered scheme in those years. Salary sacrifice converts employee NI-deductible contributions into employer contributions, saving the employee 8% (or 2%) NI and the employer 15% NI — often shared back to the employee as a higher contribution. Worked example: £50,000 salary, £5,000 employee contribution. Convert to sacrifice: employer pays £5,000 + £750 of NI savings = £5,750 into the pension. The employee's taxable salary drops to £45,000, reducing PAYE tax and NI further. Lump Sum Allowance still caps tax-free cash at £268,275 across all pots.