A pension scheme helps save money for retirement. Employees make regular payments during their working life, which they receive as income after retirement. Sage 50 Payroll calculates contributions for both employee and employer, deducts the amount, and prints it on the payslip.
Types of pension scheme There are several types of pension scheme that your software includes as options. To find out about each type of scheme, ▼ click here. | Scheme type | Description | | Contracted Out Money Purchase (COMP) | On 6 April 2012, contracting out of the additional State Pension on a defined contribution basis ended. You can't use a COMP occupational pension and National Insurance (NI) categories F, G and S are no longer valid. | | Contracted Out Salary Related (COSR) |  NOTE: It's no longer possible for employees to join COSR schemes, or to make contributions if they're an existing member. Contracted out means opting out of the State Second Pension, previously known as SERPS.
Employees contributing to COSR schemes receive NI relief. This is achieved by as they're assigned NI categories D, E or L, resulting in reduced NI contributions. The pension contribution deducts before the tax calculation. If the employee is over state pension age and normally in Category C, set up a new pension scheme with the same settings but type: Other. | | Contracted In Salary Related (CISR) | NOTE: It's no longer possible for employees to join CISR schemes, or to make contributions if they're an existing member. The pension contribution deducts before the tax calculation. Employees contributing to CISR schemes have NI categories A, B, C, J or X. | | Contracted Out Mixed Benefit (COMB) | NOTE: It's no longer possible for employees to join COMB schemes, or to make contributions if they're an existing member. The pension contribution deducts before tax, unless the scheme is stakeholder-friendly. Employees contributing to COMB schemes have NI categories D, E or L. If the employee is over state pension age, assign NI category C. | | Group Personal Pension (GPP) | This isn't a contracted out scheme, so NI contributions are at the standard rate. The employee pays tax on the contribution which the pension provider reclaims from the government and adds to the employee's pension fund. This means that the pension contribution is ultimately tax free. If the scheme is based on a percentage, the calculation includes the relevant amount of tax relief, currently 20%. For example, if an employee's monthly gross pay is £1000 and their pension contribution is 10%, the pension contribution is £80. Calculated as follows:
10% of £1000 = £100
20% of £100 = £20
£100 - £20 = £80 | | Personal Pension Plan (PPP) | NI contributions on this scheme are at the standard rate, with employees having NI categories A, B, C, J or X. The employee pays tax on the contribution which the pension provider reclaims from the government and adds to the employee's pension fund. This means that the pension contribution is ultimately tax free. If the scheme is based on a percentage, the calculation includes the relevant amount of tax relief, currently 20%. For example, if an employee's monthly gross pay is £1000 and their pension contribution is 10%, the pension contribution is £80. Calculated as follows:
10% of £1000 = £100
20% of £100 = £20
£100 - £20 = £80 | | Stakeholder | A stakeholder pension is one of the more basic and flexible pension schemes. Before 1 October 2012, employers with over five employees had to offer a stakeholder pension scheme within three months of meeting stakeholder requirements. However, some employers were exempt. Since the introduction of automatic enrolment legislation, it's no longer a statutory requirement. Go to thepensionsregulator.gov.uk to find out more. The employee pays tax on the contribution which the pension provider reclaims from the government and adds to the employee's pension fund. This means that the pension contribution is ultimately tax free. Employees contributing to stakeholder schemes can have NI categories A, B, C or J. For further information, visit gov.uk. If the scheme is based on a percentage, the calculation includes the relevant amount of tax relief, currently 20%. For example, if an employee's monthly gross pay is £1000 and their pension contribution is 10%, the pension contribution is £80. Calculated as follows: 10% of £1000 = £100
20% of £100 = £20
£100 - £20 = £80 | | Other | The 'Other' option lets you set up any scheme which doesn't fit the scheme types available in Sage 50 Payroll. You can edit all the properties of this pension scheme. For instance, such as whether to deduct contributions before or after tax. If the scheme is based on a percentage, the calculation includes the relevant amount of tax relief, currently 20%. For example, if an employee's monthly gross pay is £1000 and their pension contribution is 10%, the pension contribution is £80. Calculated as follows: 10% of £1000 = £100
20% of £100 = £20
£100 - £20.00 = £80 | | Master Trust | Also known as a multi-employer pension scheme, this type of pension scheme is available to many unrelated employers and their employees. Employers often use this scheme type for automatic enrolment schemes. A Master Trust scheme normally deducts after tax, providing employees a saving on the tax they pay on their earnings. However, you can change this if you're able to agree it with your provider. Sometimes, you need to set a pension scheme as Master Trust and select the Use Qualifying Earnings for pensionable pay option. The setting in the Employee and Employer tabs automatically select the boxes for all statutory payments to include in the pension calculation. These statutory payments boxes are only available for you to select or clear when you clear the 'Use Qualifying Earnings for pensionable pay' checkbox. When you set up your pension scheme in Sage 50 Payroll, contact your pension provider if you aren't certain of any settings to apply. | For further information about any of these schemes, contact your pension provider.
Contribution information The employee and employer can contribute a fixed amount or percentage of the employee's salary to the pension scheme. For certain types of pension schemes, you must specify the required value when you set up the pension scheme. ▼ Click here to find out how this affects each scheme type. | Scheme type | Fixed Amount or Percentage | Contribution details | | COMP, COSR, CISR and COMB | Percentage | Specify the value here as you can't change it within each individual employee's record or in Enter Payments. The value applies to all employees assigned to this scheme. | | COMP, COSR, CISR and COMB | Fixed Amount | Either: - Specify an amount here for all employees on this scheme. You can't amend it within each individual employee's record or in Enter Payments
- Leave the amount as zero. You can then manually enter a contribution in Enter Payments each time you process the payroll
| | GPP, PPP, Stakeholder and Other | Percentage | Either: - Specify a value here and, where necessary, amend the percentage within each individual employee's record
- Leave the value as zero. You can then enter the required percentage within each individual employee's record
| | GPP, PPP, Stakeholder and Other | Fixed Amount | Either: - Specify an amount here and, where necessary, amend the amount within each individual employee's record
- Leave the amount as zero. You can then manually enter a contribution in Enter Payments each time you process the payroll
| If the scheme bases pension contributions on a percentage, you can specify restrictions as follows: | Apply to all Pensionable Earnings | To calculate the pension percentage on your employee's total pensionable pay, select this option. | | Restrict to Statutory N.I. Upper/Lower Bands | To apply the pension percentage to the NI earnings bands only, select this option. | | Restrict to Specific Upper/Lower Bands | To apply the pension percentage to your own defined earnings limits, select this option. Enter your earnings limits in the Lower and Upper boxes, which appear automatically when you select this option. The bands you enter apply to all employees on this pension scheme, regardless of their payment frequency. If you have employees on different payment frequencies, set up multiple schemes with the relevant rates on each. |
Default pension settings When you edit a pension scheme's type in Sage 50 Payroll, your software applies the relevant default settings. ▼ Click here to find out what these settings are for each scheme type. The following tables show the default settings for each type of scheme in Sage 50 Payroll: | Setting | Other | COSR | CISR | COMB | COMB shf | GPP | PPP | Stakeholder | | Valid NI categories | Any | D, E, L | A, B, C, J, X | D, E, L | D, E, L | A, B, C, J, X | A, B, C, J, X | A, B, C, J, X | | Calculate minimum rebate | Y | N | N | Y | Y | N | N | N | | Include Rebate and Amount | Y | N | N | N | N | N | N | N | | Include SSP Payments** | Y | Y | Y | Y | Y | Y | Y | Y | | Include SMP Payments** | Y | Y | Y | Y | Y | Y | Y | Y | | Include SAP Payments** | Y | Y | Y | Y | Y | Y | Y | Y | | Include SPP Payments** | Y | Y | Y | Y | Y | Y | Y | Y | | Deduct before tax | Y | Y | Y | Y | N | N | N | N | | ECON Needed | N | Y | N | Y | Y | N | N | N | | SCON Needed | N | Y | N | Y | Y | N | N | N | | Additional Voluntary Contribution (AVC) Allowed*** | Y | Y | Y | Y | Y | N | N | N | | | Key | | ** | By default, your software applies these options in default pension schemes that you haven't edited. However, they're clear in any new schemes that you set up | | *** | If it's a fixed amount scheme contribution, set this to greater than zero at company level | | shf | Stakeholder Friendly | | Y | Box enabled and selected | | N | Box enabled and clear | | Y | Box greyed out and selected | | N | Box greyed out and clear |
Additional information To find out more about pensions, including making additional voluntary contributions (AVCs) and tax relief, ▼ click here. Appropriate Personal Pension schemes Appropriate Personal Pension (APP) schemes and Appropriate Personal Pension Stakeholder Pension (APPSHP) schemes are types of personal pension. They enable an employee to contract out of the State Second Pension, previously known as the State Earnings Related Pension Scheme (SERPS). Employees may contract out through an APP and be a member of their employer's contracted in occupational pension scheme, or a personal pension scheme. AVCs If an employee wants to make extra contributions to their pension scheme, they may be able to make an AVC. This depends on their type of pension scheme and the settings specified at company level. To find out how to set this up, visit the set-up an AVC article. Pensions and tax relief Tax relief is when the tax due on the pension contribution amount goes into the pension fund. Pension schemes provide tax relief in the following ways: ▼ Net pay arrangements This applies to the following schemes: - COMP
- COSR
- CISR
- COMB
- Other when the Deduct Before Tax check box is selected
NOTE: Stakeholder-friendly COMP and COMB schemes don't provide tax relief at source. Pension contributions deduct before tax. Taxable gross pay reduces by the amount of the pension contribution, therefore the employee doesn't pay tax on their pension contribution. ▼ Percentage contributions Sage 50 Payroll calculates the percentage of the applicable pensionable earnings and deducts this full amount from the gross pay, before calculating tax. ▼ Click here to view an example. An employee contributes 5% of their total gross pay to their pension scheme. - Total gross pay = £300
- Employee's pension contribution = £15 (£300 x 5%)
- Taxable gross pay = £285 (£300 - £15)
Tax relief at source This applies to the following schemes: - GPP
- PPP
- Stakeholder
- COMP stakeholder-friendly
- COMB stakeholder-friendly
- Other when the Deduct Before Tax checkbox is clear
With this arrangement, pension contributions calculate after tax. This means the employee pays tax on all taxable pay, including the pension contribution. The pension provider claims back the Basic Rate tax paid on this contribution, direct from HMRC. Sage Payroll calculates the percentage of the applicable pensionable earnings then reduces this by 20%, which is the basic tax rate. The contribution deducts from the net pay. For example, an employee contributes 10% of their total gross pay to their pension scheme. The total gross pay is £1000 and the calculation is as follows: Percentage amount = £100 (£1000 x 10%)
Tax relief = £20 (£100 x 20%)
Pension contribution = £80 (£100 - £20) NOTE: If you enter a fixed amount contribution, take tax relief into account in the amount you enter. Sage 50 Payroll doesn't reduce the contribution by 20% on fixed amounts. ▼ Director's pensions A director's pension contributions usually calculate in the same way as other employees. This is unless the pension scheme restricts the contributions to the Lower Earnings Limit (LEL) and Upper Earnings Limit (UEL). If the director joins the company part-way through the tax year, Sage 50 Payroll uses the pro rata NI bands for the pension calculation. This works in the same way as with NI. Director (Table Method) This calculates in the same way as non-directors. There's no cumulative recalculation in the final period, so there may be a discrepancy between a table method and cumulative director for the year. Director If you select the Restrict to Statutory NI Upper/Lower Bands option on a pension scheme, a director's pension works differently. It uses yearly or pro rata LEL and UEL and calculates the pension on the pensionable gross pay between these figures. Minimum Payment When an employee has a non-contracted out NI category, a small percentage of their NI contributions go to the State Earnings Related Pension Scheme (SERPS). This is for the state pension payments they receive after retirement age.
If an employee has a contracted out NI category, this payment doesn't go to SERPS, instead the NI contribution reduces by this percentage. To ensure that employees in this situation make sufficient pension contributions, there's a minimum payment. This is equivalent to the percentage that normally goes to SERPS.
Tiered pension schemes For teachers, NHS and local Government workers, pension schemes commonly use a tiered pension scheme. Each employee's pension contribution rate varies depending on which tier their pay falls in. To find out more, visit our tiered pensions - Teachers, NHS and local government pensions article.
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