Settings that affect pension calculations
Description

Pension contribution calculations are based on a few key settings and values. Click each option below to learn more.

▼ Pensionable earnings

This is the total value of an employee's payments used to calculate their pension contributions.

For example, an employee's gross pay includes a £900 pensionable salary payment, and a £100 non-pensionable bonus payment. The total gross pay is £1000, but the pensionable earnings are £900.

To check an employee's pensionable earnings, choose a dropdown below.


▼ Type of contribution

The type of contribution refers to whether the pension is:

  • Salary Sacrifice
  • Contribution deducted before tax
  • Contribution deducted after tax with tax relief

To check the type of contribution for your pension, follow the steps below:

  1. Go to Pensions and select Edit Pension.
  2. Next to the relevant group, select View/Edit.
  3. See the Type of contribution.

▼ Earnings basis

The earnings basis sets how much of an employee's gross pay gets is used to calculate pension contributions. This gets is set in the pension and payment settings. If they don't match, the pension calculations will be wrong.

Check the pension settings:

  1. Go to Pensions and select Edit Pension.
  2. On the relevant group, select View/Edit.
  3. Select Next to view the earnings basis selected.

Check the payment settings:

  1. Go to Settings and select Payments and deductions.
  2. From your list of payments, select Edit on the relevant payment. 
  3. At the bottom of the window, you'll see the checkboxes with the selected earnings basis.

See the dropdown below for definitions on each basis. 

▼ Qualifying earnings or Banded earnings

Qualifying earnings use thresholds to determine how much of an employee's pay is pensionable. 

  • Earnings below the annual lower threshold of £6,240 aren't included in the employee's pension contribution
  • Earnings above the annual upper threshold of £50,270 aren't included in the employee's pension calculation

Let's break down those annual thresholds into values for each pay frequency.

Pay Frequency Lower threshold Upper threshold
Monthly £520 £4189
Four weekly £480 £3867
Fortnightly £240 £1934
Weekly £120 £967

 

▼ Pensionable pay or Unbanded earnings

Pensionable pay or unbanded earnings don't have limits, so the pension calculates on the total payment.

▼ Custom earnings basis

A custom earnings basis uses thresholds set between you and your pension provider. 

 

 


Calculation examples

Visit the pension calculation examples article to see how the settings above affect pension contributions.