In these examples, you can see how the lower threshold of £6240 and upper threshold of £50270 per year affect the pension calculation. These thresholds apply when Use Qualifying Earnings for pensionable pay is enabled in the employee's pension scheme settings.

Monthly paid employee, with earnings within the QE thresholds.

• Employee contribution rate 5%
• Employer contribution rate 3%
• Pensionable pay is £2000
  NOTE: The lower QE threshold for a monthly paid employee is £520, so we must subtract this from the pensionable pay.
• £2000 – £520 = £1480. This is the value to apply employee and employer rates to
• Employee contribution: 5% of £1480 = £74.00
• Employer contribution: 3% of £1480 = £44.40

 

Monthly paid employee, with pensionable pay above the upper QE threshold

• Employee contribution rate = 5%
• Employer contribution rate = 3%
• Pensionable Pay = £8000
  NOTE: Pensionable pay is higher than the monthly upper earnings threshold of £4189, you must disregard any earnings over the upper threshold for your employee's pay frequency during the calculation. Due to this, we must subtract the lower threshold of £520 from the maximum value allowed in a QE scheme, which is £4189.
  
• £4189 – £520 = £3669. This is the value to apply employee and employer rates to
• Employee contribution: 5% of £3669 = £183.45
• Employer contribution: 3% of £3669 = £110.07
  

 

Monthly paid employee with pensionable pay below the lower QE threshold.

• Employee contribution rate = 5%
• Employer contribution rate = 3%
• Gross Pay = £500
  NOTE: Because the gross pay is less than the lower earnings threshold, there is no pay remaining to calculate a contribution.
• £500 – £520 = £0. This is the value to apply employee and employer rates to
• Employee contribution: 5% of £0 = £0.00
• Employer contribution: 3% of £0 = £0.00

 

Weekly paid employee, with pensionable pay within the QE thresholds.

• Employee contribution rate = 5%
• Employer contribution rate = 3%
• Pensionable Pay = £400
  NOTE: The lower QE threshold for weekly paid employees is £120, so we must subtract this from the pensionable pay.
  
• £400 – £120 = £280. This is the value to apply employee and employer rates to
• Employee contribution: 5% of £280 = £14.00
• Employer contribution: 3% of £280 = £8.40

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This method applies the lower and upper qualifying earnings thresholds, however when the pension contribution deducts after tax the employee's contribution rate reduces by 20% due to tax relief on the pension contribution. Let's look at some examples with varying rates.

Monthly paid employee with standard contribution rates. 

• Employee contribution rate = 5%
• Employer contribution rate = 3%
• Pensionable Pay = £2000
  NOTE: The lower QE threshold for monthly paid employees is £520, so we must subtract this from the pensionable pay.
  
• £2000 – £520 = £1480. This is the value to apply employee and employer rates to
• The employee contribution rate is 5%, but we need to reduce this by 20% to get the actual employee contribution rate deducted in payroll
• 5 @ 80% = 4. The employee contribution rate applied in the calculation is 4%
• Employee contribution: 4% of £1480 = £59.20
• Employer contribution: 3% of £1480 = £44.40

 

Monthly employee with higher contribution rates.

• Employee contribution rate = 9%
• Employer contribution rate = 5%
• Pensionable Pay = £2000
  NOTE: The lower QE threshold for monthly paid employees is £520, so we must subtract this from the pensionable pay.
  
• £2000 – £520 = £1480. This is the value to apply employee and employer rates to
• The employee contribution rate is 5%, but we need to reduce this by 20% to get the actual employee contribution rate deducted in payroll
• 9 @ 80% = 7.2. The employee contribution rate applied in the calculation is 7.2%
• Employee contribution: 7.2% of £1480 = £106.56
• Employer contribution: 5% of £1480 = £74.00

 

Weekly paid employee with standard contribution rates.

• Employee contribution rate = 5%
• Employer contribution rate = 3%
• Pensionable Pay = £600
   NOTE: The lower QE threshold for weekly paid employees is £120, so we must subtract this from the pensionable pay.
  
• £600 – £120 = £480. This is the value to apply employee and employer rates to
• The employee contribution rate is 5%, but we need to reduce this by 20% to get the actual employee contribution rate deducted in payroll
• 5 @ 80% = 4. The employee contribution rate applied in the calculation is 4%
• Employee contribution: 4% of £480 = £19.20
• Employer contribution: 3% of £480 = £14.40

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This combination of settings is the easiest to reconcile, as there are no thresholds to apply. Your employee's pay frequency doesn't affect this calculation.

Weekly paid employee with standard contribution rates. 

• Employee contribution rate 5%
• Employer contribution rate 3%
• Pensionable pay is £600
• Employee contribution: 5% of £600 = £30.00
• Employer contribution: 3% of £600 = £18.00

 

Monthly paid employee with increased contribution rates.

• Employee contribution rate 12%
• Employer contribution rate 6%
• Pensionable pay is £5000
• Employee contribution: 12% of £5000 = £600.00
• Employer contribution: 6% of £5000 = £300.00

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In a scheme with these settings, you must apply tax relief of 20% to the employee contribution rate. Your employee's pay frequency doesn't affect this calculation.

Monthly paid employee with standard contribution rates.

• Employee contribution rate = 5%
• Employer contribution rate = 3%
• Pensionable Pay = £6000
• The employee contribution rate is 5%, but we need to reduce this by 20% to get the actual employee contribution rate deducted in payroll
• 5 @ 80% = 4. The employee contribution rate applied in the calculation is 4%
• Employee contribution: 4% of £6000 = £240.00
• Employer contribution: 3% of £6000 = £180.00

 

Weekly paid employee with increased contribution rates.

• Employee contribution rate = 8%
• Employer contribution rate = 4%
• Pensionable Pay = £500
• The employee contribution rate is 5%, but we need to reduce this by 20% to get the actual employee contribution rate deducted in payroll
• 8 @ 80% = 6.4. The employee contribution rate applied in the calculation is 6.4%
• Employee contribution: 6.4% of £500 = £32.00
• Employer contribution: 4% of £500 = £20.00