Part 2 – Should landed estates opt for enhanced employer contributions?

As employment practices evolve, landed estates may benefit from reconsidering their approach to funding retirement accommodation, and instead pay enhanced contributions into their employees’ pension schemes. This alternative may offer the opportunity for superior investment returns and tax efficiencies compared to the costs associated with retirement housing, such as lost rental income or the subsidising of rent. We have teamed up with First Actuarial to consider the main advantages below.

Key Points

• Enhanced pension contributions offer the potential for higher compounded investment returns and tax savings over the course of an employee’s service, comparing favourably with the cost of retirement accommodation directly on retirement.
• Contributing 10% of an employee’s salary into a pension scheme over 43 years of service, could save the employer more than £100,000 compared to paying for accommodation costs when the employee retires. The employee could use this retirement fund to purchase a single life annuity of around £16,000 pa (approximately £12,800 pa post tax).

The Traditional Approach

Historically, employment on landed estates often began at an early age, with workers receiving modest wages in exchange for the promise of housing on retirement. This arrangement reflected an understanding that with the employee contributing to the estate’s operations throughout their working life, the estate would provide for them in retirement, typically until death.

While the traditional approach fosters loyalty, it also places a long-term financial and logistical burden on estate owners. A possible, and potentially more efficient, alternative is to shift away from housing provision and instead pay enhanced employer contributions into the employee’s pension scheme throughout their working life. This would allow the employee to build a pension pot sufficient to rent estate property at a fair market rate on retirement, should they choose to do so. Rather than absorbing the cost of possibly over 20 years of housing, the employer could pay enhanced contributions to the pension scheme over the worker’s long service.

Legal Obligations

Under the Pensions Act 2008, employers are required to auto-enrol eligible jobholders into a qualifying pension scheme, typically a defined contribution scheme. Eligible jobholders must currently be auto-enrolled with pension contributions of at least 8% of qualifying earnings as follows:

• Employers: must pay at least 3% of qualifying earnings; and
• Employees: must pay the remaining 5% of qualifying earnings.

A worker qualifies as a “jobholder” if they are:

• working (or ordinarily working) in Great Britain under a contract;
• aged at least 16 and under 75; and
• paid qualifying earnings by an employer in a relevant pay reference period (for the 2025/26 tax year this is earnings between £6,240 and £50,270).

To be eligible for auto-enrolment the jobholder must meet all the following conditions:

• be at least 22 and below state pension age;
• have earnings that exceed the earnings trigger in a relevant pay reference period (£10,000 for the 2025/26 tax year);
• not already be an active member of their employer’s qualifying scheme at the date they become eligible for auto-enrolment; and
• not be within a category of jobholders that is excluded from auto-enrolment (e.g. workers who are in a notice period).

Employees who fall outside any of these criteria, can choose to opt into the auto-enrolment scheme. While employers must satisfy minimum contribution requirements, they retain the flexibility to pay enhanced amounts into employee pension schemes. For the 2025/26 tax year, these contributions remain tax-efficient for the employee provided they do not exceed 100% of the employee’s salary, up to the available standard Annual Allowance of £60,000.

What savings can be made?

Let’s take an employee, John, who starts working on the land at 22. He is paid a basic salary for 43 years, as a tractor driver on £35,000 per annum. He is auto-enrolled into a pension scheme on minimum auto-enrolment contributions of 3% employer contributions on qualifying earnings. The annual cost to the employer is £862.80 per year or around £37,000 over the employee’s service. His retirement fund could be worth around £11,000 pa, assuming he chooses a single life annuity increasing in line with inflation. In this scenario, the employee is also contributing £1,438 per year, assuming the employee is auto-enrolled on minimum contributions, under the traditional approach.

If the employer instead pays enhanced contributions of 10% of the employee’s full salary, with no contributions from the employee, the annual cost to the employer would be £3,500 or around £151,000 over the employee’s service. His retirement fund could be worth around £16,000 pa (which is equivalent to £12,800 post tax, assuming he is a basic rate taxpayer).

In contrast, lost income due to rent foregone would cost the employer around £12,000 pa or around £264,000 over the rest of his life.

While these numbers are from a rudimentary example – there are many additional factors that need to be taken into consideration to provide an accurate estimate – there is clearly an opportunity for landed estates to make significant savings.

Please note, in doing these approximate calculations, First Actuarial has assumed that the return on pension savings would be in line with inflation + 3% pa. All figures are quoted in real terms. First Actuarial also assumed an average male life expectancy of 87 years. Annuity rates are based on current market rates. Of course, actual experience may differ significantly to this, so these figures can only be treated as estimates.

Advantages for Employers

Paying enhanced pension contributions presents several benefits for estate owners:

1. Investment Growth: Contributions made early in an employee’s career benefit from compound investment growth.
2. Business Tax Relief*: For businesses and companies, pension contributions for employees are generally deductible as a business expense for the purposes of corporation tax and not subject to national insurance contributions (NIC). However, partners of partnerships and sole traders cannot deduct their own pension contributions from business profits.
3. Income Tax Relief* on Contributions: Pension contributions paid into an employee’s auto-enrolment scheme benefit from income tax relief.
4. Income Tax and NIC Savings* on Salary Exchange Arrangements: If salary exchange (also known as salary sacrifice) is in place, employees save income tax and NICs on income exchanged as an employer pension contribution into the auto-enrolment scheme. Employers also make savings on their NICs.
5. Cash Flow: No loss of rental income and no cash is needed from the landed estate employer to pay for high rent costs for retirement accommodation when the employee retires.
6. Flexibility: The landed estate retains control over its housing stock, which can be rented to other tenants if the retiree chooses to live elsewhere.

*Please note that any tax benefits are subject to change based on evolving government legislation including changes to national insurance contributions relief via salary exchange from April 2029. Nothing in this publication constitutes tax advice. Specific tax advice should be sought at the point in time as and when any arrangements considered in this article are put in place. There is a risk that the current Government are more likely to make adverse changes, such as the aforesaid changes coming in from April 2029.

Any Drawbacks?

Employers do not have control over how their employees decide to spend their retirement income from their pension pot. The employee is not required to use their pension to rent estate property and may choose to retire elsewhere. However, if they do wish to remain on the estate, they are assisted to do so independently. This arrangement relies on a mutual understanding rather than a binding obligation.

Summary

Enhanced employer pension contributions could offer a compelling alternative to traditional retirement housing arrangements on landed estates. They align with modern employment practices, provide financial flexibility, and may help to preserve the estate’s housing assets. Most importantly, they continue the tradition of loyalty for long service, in a more sustainable and cost-effective way.

Let us know if you would like any help to put these arrangements in place. We would be happy to discuss.

Acknowledgements

We would like to thank David Parfett, Co-Head of Defined Contribution Services, and Amrita Dasgupta, Actuary, at First Actuarial for their contributions to this article. Further information about First Actuarial’s defined contribution services can be found here: https://firstactuarial.co.uk/dc/

This publication is for general information purposes only and reflects the law and regulatory position as at 17 December 2025. It does not constitute legal advice, regulated financial advice, or an exhaustive statement of the law. Nothing in this publication should be relied upon as a substitute for professional advice. Specific legal advice should always be sought in relation to individual circumstances.

Meet the team:

1. 

   • Simon Blackburn

   • Partner
   • Residential Property

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2. 

   • Paul Ashcroft

   • Senior Associate
   • Pensions & Employee Benefits

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3. 

   • Alice Anderson

   • Trainee Solicitor
   • Pensions & Employee Benefits

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View the whole team