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Pensionable Earnings

What it means for you – and why it matters 

Pensionable earnings are the part of your employees’ pay that is used to calculate both yours and the employee’s pension payments. It’s a key part of how workplace pensions work – and how you manage costs and compliance. 

What counts as pensionable earnings depends on the setup of your scheme. Here’s how it works. 

What’s usually included? 

It’s not just base pay. Depending on your scheme rules, pensionable earnings might include: 

  • Salary or wages 
  • Overtime 
  • Bonuses and commission 
  • Statutory pay (like sick pay or parental leave) 

However, things like travel expenses or one-off reimbursements aren’t usually included 

How pensionable earnings are worked out 

You choose the method when your scheme is set up. Each one affects contribution amounts differently so it’s worth knowing how they compare. 

  1. Unbanded earnings (gross qualifying earnings)

You base contributions on full pay, before any deductions. 

Example: 
If someone earns £2,300 in salary and £200 in overtime, their pensionable earnings are £2,500. 

  1. Banded earnings

You only count earnings between a lower and upper threshold. For 2024–25, that’s: 

  • Lower: £6,240 
  • Upper: £50,270 

Example: 
Someone earning £2,100 a month would have £1,860 counted as pensionable (after applying the annualised lower threshold). 

Other certified methods 

Some schemes use one of these self-certified approaches instead. They still meet minimum requirements but offer flexibility in how you calculate contributions. 

  1. Basic pay only

Only the core salary is used. No bonuses or extras. 

  1. At least 85% of total pay

You set pensionable earnings at 85% or more of total pay. 

  1. Total pay

Everything counts – salary, bonuses, overtime, commission. 

These methods give you room to align pension setup with your payroll structure and cost planning. 

Why it matters 

The way you define pensionable earnings affects both employer and employee contributions. It has a real impact on employee savings and on your payroll planning. 

The right choice depends on your team setup, payroll systems, and your goals around employee support and engagement. 

Need a hand? 

We’re here to make pension setup simple – and make sure your scheme supports your business goals and your people. 

  • Call us on 01452 922000
  • Email help@mythrive.co.uk
  • Or start a live chat on our website or on the Employer Portal