What are the investment options available to the employee when an employer contributes to a pension scheme for the employee? Can one invest in US ETFs, mutual funds, and stocks? Does this contribution count towards the £40000 annual limit? Does the national insurance charge then apply on the remainder of the salary? Also, does this contribution count towards tax relief at source for both income tax and the national insurance tax?

Consider the following examples (numbers were calculated from tax.service.gov.uk).

Annual salary: £20000 Income tax: £1498 National insurance: £1260 Total tax: £2758

Annual salary: £60000 Income tax: £11498 National insurance: £5060 Total tax: £16558

Do these mean that if I draw a salary of £60000 I would end up saving in taxes £16558 - £2758 = £13800 if I have the employer contribute £40000 to a pension scheme instead of paying me directly?

  • It's good practice not to ask so many questions at once. You're in danger of your questions being closed as "too broad" otherwise. Commented Sep 28, 2020 at 8:16
  • OK. All of these questions are inter-related. I am not sure how I can ask them separately. I will edit my question. Can you edit your answer accordingly? Commented Sep 28, 2020 at 8:59
  • That's the trouble with asking multiple questions, I've provided what I know and much else of what you want to know depends on how your pension scheme is set up. Commented Sep 28, 2020 at 9:03
  • You can't change your entire question. Ask a new one if you must. Commented Sep 28, 2020 at 9:04
  • I understand. If you know, can you elaborate a bit on the difference between a regular employer contribution to a pension scheme and a salary sacrifice? Commented Sep 28, 2020 at 9:05

1 Answer 1


The investment options for employer contributions are generally the same as for your employee contributions. What you can invest in depends on your scheme's specifics.

Employer contributions count towards the limit so the sum of your contributions, including any additional voluntary contributions and employer contributions needs to be within the limit.

The rest of the questions depend on the specifics of the pension scheme your employer offers, i.e. salary sacrifice or not. Some employers set up their schemes as salary sacrifice, some don't. Salary sacrifice is better for you as you don't pay National Insurance on your contributions.

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