The pension calculation uses the following information: - The employee's pensionable earnings
- The employee and employer pension contribution rates
- The employee's pay frequency
- Whether their pension scheme uses qualifying earnings, pensionable pay, or custom earnings
- Whether pension contributions deduct before or after employees' tax
 TIP: If you're reconciling a pension contribution and aren't certain of any of these details, check them first. For help with doing this, follow the settings that affect pension calculations article.
Example calculations Two pension scheme settings in particular affect the pension contribution calculation. They are: - Earnings basis
- Deductions before or after tax
 NOTE: These settings are based on the requirements for your pension scheme. If you're not certain which settings to use, contact your pension provider.
The options below give you example calculations for each of the four variations of pension scheme setup. Click the option below that matches your scheme settings to see calculation examples. ▼ Qualifying earnings apply, and the scheme deducts before tax In this example, the lower and upper qualifying earnings thresholds apply. These thresholds apply when your pension scheme uses the qualifying earnings option in the pension scheme and payment setup. Monthly paid employee In this example, the employee's earnings are within the qualifying earnings (QE) thresholds. - Employee contribution rate 5%
- Employer contribution rate 3%
- Pensionable pay is £2,000
NOTE: The lower threshold for a monthly paid employee is £520. Subtract this from the pensionable pay. - £2000 – £520 = £1480. This is the value that the employee and employer rates apply to
- Employee contribution: 5% of £1,480 = £74.00
- Employer contribution: 3% of £1,480 = £44.40
Monthly paid employee In this instance, the employee's pensionable pay is above the upper qualifying earnings threshold. - Employee contribution rate = 5%
- Employer contribution rate = 3%
- Pensionable Pay = £8,000
NOTE: Pensionable pay is higher than the monthly upper earnings threshold of £4,189. Disregard any earnings over the upper threshold, and subtract the lower threshold of £520 from the upper threshold of £4,189. - £4,189 – £520 = £3,669. This is the value that the employee and employer rates apply to
- Employee contribution: 5% of £3669 = £183.45
- Employer contribution: 3% of £3669 = £110.07
The employee contribution is £183.45, and the employer contribution is £110.07. Monthly paid employee This example uses pensionable pay below the lower QE threshold. - Employee contribution rate = 5%
- Employer contribution rate = 3%
- Gross Pay = £500
NOTE: The gross pay is below the lower earnings threshold, so there's no pay remaining to calculate a contribution. - £500 – £520 = £0. This is the value that the employee and employer rates apply to
- Employee contribution: 5% of £0 = £0.00
- Employer contribution: 3% of £0 = £0.00
The employee and employer contributions are both £0.00. Weekly paid employee This example uses 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. Subtract this from the pensionable pay. - £400 – £120 = £280. This is the value that the employee and employer rates apply to
- Employee contribution: 5% of £280 = £14.00
- Employer contribution: 3% of £280 = £8.40
The employee contribution is £14.00, and the employer contribution is £8.40.
▼ Qualifying earnings apply, and the scheme deducts after tax In this example, the lower and upper qualifying earnings (QE) thresholds apply. When the pension contribution deducts after tax, the employee's contribution rate reduces by 20%. This is due to tax relief on the pension contribution. Monthly paid employee This example uses standard contribution rates. - Employee contribution rate = 5%
- Employer contribution rate = 3%
- Pensionable Pay = £2000
NOTE: The lower threshold for monthly paid employees is £520, so we must subtract this from the pensionable pay. - £2000 – £520 = £1480. This is the value that the employee and employer rates apply to
- The employee contribution rate is 5%, but it reduces by 20% to get the actual employee contribution rate
- 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
The employee contribution is £59.20, and the employer contribution is £44.40. Monthly paid employee This example uses increased contribution rates. - Employee contribution rate = 9%
- Employer contribution rate = 5%
- Pensionable Pay = £2000
NOTE: The lower threshold for monthly paid employees is £520, so we must subtract this from the pensionable pay. - £2000 – £520 = £1480. This is the value that the employee and employer rates apply to
- The employee contribution rate is 9%, but it reduces by 20% to get the actual employee contribution rate
- The actual employee contribution rate in the calculation is 7.2%, which is 80% of the original 9% contribution rate
- Employee contribution: 7.2% of £1480 = £106.56
- Employer contribution: 5% of £1480 = £74.00
The employee contribution is £106.56, and the employer contribution is £74.00. Weekly paid employee This example uses standard contribution rates. - Employee contribution rate = 5%
- Employer contribution rate = 3%
- Pensionable Pay = £600
NOTE: The lower threshold for weekly paid employees is £120, so we must subtract this from the pensionable pay. - £600 – £120 = £480. This is the value that the employee and employer rates apply to
- The employee contribution rate is 5%, but it reduces by 20% to get the actual employee contribution rate
- The actual employee contribution rate in the calculation is 4%, which is 80% of the original 5% contribution rate
- Employee contribution: 4% of £480 = £19.20
- Employer contribution: 3% of £480 = £14.40
The employee contribution is £19.20, and the employer contribution is £14.40.
▼ Qualifying earnings don't apply, and the scheme deducts before tax 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 The employee has standard contribution rates in this example. - 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
The employee contribution is £30.00, and the employer contribution is £18.00. Monthly paid employee In this example, the employee contribution rates above the minimum required for an automatic enrolment scheme. - 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
The employee contribution is £600.00, and the employer contribution is £300.00.
▼ Qualifying earnings don't apply, and the scheme deducts after tax When the pension contribution deducts after tax, the employee's contribution rate reduces by 20%. This is due to tax relief on the pension contribution. Your employee's pay frequency doesn't affect this calculation. Monthly paid employee - Employee contribution rate = 5%
- Employer contribution rate = 3%
- Pensionable Pay = £6000
- The employee contribution rate is 5%, but it reduces by 20% to get the actual employee contribution rate
- The actual employee contribution rate in the calculation is 4%, which is 80% of the original 5% contribution rate
- Employee contribution: 4% of £6000 = £240.00
- Employer contribution: 3% of £6000 = £180.00
The employee contribution is £240.00, and the employer contribution is £180.00. Weekly paid employee - Employee contribution rate = 8%
- Employer contribution rate = 4%
- Pensionable Pay = £500
- The employee contribution rate is 8%, but it reduces by 20% to get the actual employee contribution rate
- The actual employee contribution rate in the calculation is 6.4%, which is 80% of the original 8% contribution rate
- Employee contribution: 6.4% of £500 = £32.00
- Employer contribution: 4% of £500 = £20.00
The employee contribution is £32.00, and the employer contribution is £20.00.
|