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1 Oct 2020

Government's new Job Support Scheme will not cover pension contributions: how will your savings be affected?

Auto-enrolment rules still apply, so employers must pay at least 3%

Employers won't get help to pay pension contributions for workers under the government's new scheme to protect jobs, but that doesn't mean your boss can stop paying into your pension pot.

Last week, Chancellor Rishi Sunak announced a new Job Support Scheme, which will start in November and replace the current Coronavirus Job Retention Scheme.

Unlike the current scheme - in which the government covered pension contributions and National Insurance contributions (NICs) for workplace schemes under auto-enrolment (AE) - the Job Support Scheme won't offer employers any extra assistance.

Instead, employers will be expected to foot the bill alone for six months. Here, Which? looks at how the new scheme will work for pensions in more detail and whether the move will impact your pension savings.

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How auto-enrolment works

AE is a government initiative introduced in 2012 that requires all employers in the UK to put their qualifying staff into a workplace pension scheme.

You and your employer will pay contributions to your pension, which is then invested and managed by your pension provider until you retire.

You qualify for AE if:

  • you aren't already in a qualifying workplace scheme;
  • you're over 22 years old;
  • you're below state pension age;
  • you earn more than £10,000 a year in 2020-21;
  • you work in the UK.

The contributions you and your employer make will be calculated on your 'qualifying earnings', which is set between £6,240 and £50,000 a year.

There are minimum contributions you and your employer must pay. Since last April, total minimum contributions have rested at 8%; with a minimum of 5% paid by you and 3% from your employer.

How the new job scheme will work for pensions

The Job Support Scheme is claimed by employers, for employees who are in work for at least a third of their normal hours.

The employer must pay the employee for the work they carry out. The government and employer will then top up the pay by one third each for the unworked hours.

For example, take a worker who usually earns £1,200 a month, but is only able to work half their normal hours. Their employer pays them £600 for the time they've worked, and under the Job Support Scheme, the government and their employer would pay a further £200 top-up each.

Government payments are capped at £697.92 per month, but employees should still receive at least 77% of their normal pay.

As pension contributions are calculated as a percentage of your pay, they may be lower during the period when your hours and earnings are reduced.

However, pension contributions will still need to meet the minimum 8% level required under auto-enrolment. This applies to 'qualifying earnings' of £6,240-£50,000 a year, equivalent to £520-£4,167 a month, or £120-£962 a week.

Employers will have to pay their share of national insurance and pension contributions and these aren't included within the sum they can claim from the government under the new job scheme.

Checking your contributions

Your employer should ensure it's paying the right amount of contributions. If it doesn't it risks being fined by The Pensions Regulator (TPR) for not meeting AE duties.

Further guidance should be published in the coming weeks which will set out how an employer should calculate pension contributions under the new scheme. We'll update this story once we know more.

However, it's still important to know you're getting the right amount, so you can check your payslip.

The Money Advice Service has a calculator which should show you how much should be paid into your pension by you and your employer based on your salary.

You should get a pension statement once a year that shows you a complete breakdown of your pension. If you think you've been paid the wrong amount be sure to discuss your concerns with your employer and/or pension provider.

Can you opt-out of saving into a pension?

If your pay has been affected by the coronavirus crisis, or you simply want to cut down on costs during this time you can opt-out of paying into your pension.

However, by stopping your contribution you end your employer's liability to contribute money into your pot as well.

Saving for retirement is really important, so you should only really be opting out if you need the money right now to pay essential costs.

Opting out involves getting an opt-out form from your pension provider or doing so via an online account. You can get the contact details of your pension company from your employer.

If the form is completed and returned to your employer within one month of being automatically enrolled, any money you have paid into the pension will be refunded, otherwise, the money will be held in the scheme until you can access it when you turn 55.

If you wish to opt back into your pension, you'll need to ask your employer.

Does auto-enrolment apply if you're self-employed?

Self-employed workers aren't automatically enrolled into a pension scheme.

However, it's still sensible to plan for your retirement and start a pension if you can.

You can opt for a personal pension or a self-invested personal pension (Sipp) to invest your retirement savings.

While any contributions will have to come from you, you'll get a contribution from the government in the form of pension tax relief.

What else affects my pension?

Rises or falls in the stock market affect how much is in your overall pension pot, too.

For example, if you have a DC pension - whether private or through work - your savings have probably also been hit quite hard in the short term.

This is because stock markets - which at least some of your savings will be invested in - haven't been performing well due to the uncertainty around the pandemic.

If you're worried about how coronavirus is impacting your other finances, you can keep up to date on our latest coverage on our coronavirus advice page.