What is contribution monitoring?
When you set up your pension scheme, you'll have set guidelines which will become part of your employees' contracts. The guidelines will include how much you'll contribute to their individual plans and how they can contribute.
However, The Pensions Regulator (TPR) ask that pension providers, like Royal London, keep an eye on the contributions you pay too. This means we need to check your contributions are in line with what we expect, based on the way the plans in your pension scheme have been set up. We call this contribution monitoring.
What this means for you
In line with guidance from The Pensions Regulator (TPR) on providing good outcomes for employees, we have improved the way we monitor your pension contributions. This means you must check and include details of each employee's "pensionable earnings" every time you submit a contribution. You won't be able to submit your contributions without pensionable earnings information.
You should use your scheme’s definition of pensionable earnings to calculate pension contributions for your employees.
You, as the employer, are responsible for the quality of your data, ensuring it’s accurate and up to date.
Pensionable earnings
Pensionable earnings are the elements of an employee's pay that you use to calculate their pension contributions. Because there are a few different definitions, we created a flowchart to help you understand which definition of pensionable earnings you should use.
It's important you understand the different definitions because it will impact the legal minimum amounts both you and your employee contribute.
If you’re unsure which definition of pensionable earnings you should use, please contact your Royal London Servicing team.
Qualifying earnings
Qualifying earnings refers to the band of an employee's yearly earnings (before tax and National Insurance are taken off) that falls between the lower and higher earnings thresholds set by the DWP. For the 2024/25 tax year this is between £6,240 and £50,270 a year.
An individual’s yearly earnings must include all earnings – for example, basic pay, statutory benefits and variable pay such as bonuses, overtime, commissions.
If you’re using qualifying earnings, the overall minimum contribution rate is 8%. You, the employer, must contribute at least 3%.
Total pay
Total pay includes all the money an employee is paid. It includes the employee’s earnings, holiday pay and statutory benefits (like statutory sick pay or statutory maternity pay). It also includes bonuses, overtime payments and commission they may earn.
Using this method, the overall minimum contribution rate is 7%. You, the employer, must contribute at least 3%.
You must re-certify your pensionable earnings and contributions basis every 18 months, or sooner if there are changes.
Basic pay - 9%
Basic pay includes an employee’s earnings, calculated from the first pound, before tax and National Insurance are taken off. It includes holiday pay and some statutory benefits (like statutory sick pay or statutory maternity pay), but it doesn’t have to include bonuses, overtime payments or commission they may earn.
The overall minimum contribution rate for this method is 9%. You, the employer, must contribute at least 4%.
You must re-certify your pensionable earnings and contributions basis every 18 months, or sooner if there are changes.
Basic pay - 8%
Basic pay includes an employee’s earnings, calculated from the first pound, before tax and National Insurance are taken off. It includes holiday pay and some statutory benefits (like statutory sick pay or statutory maternity pay), but it doesn’t have to include bonuses, overtime payments or commission. Under this definition, in addition to basic pay, 85% of total payroll must be pensionable.
The overall minimum contribution rate for this method is 8%. You, the employer, must contribute at least 3%.
You must re-certify your pensionable earnings and contributions basis every 18 months, or sooner if there are changes.
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Using salary exchange
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Using tax relief at source
If qualifying earnings is your definition of pensionable pay, you’ll exclude earnings below the lower earnings threshold, and above the upper earnings threshold.
The Pensions Regulator provides examples of lower and higher thresholds of qualifying earnings for different pay reference periods. For the current tax year, these are:
| Pay reference period | ||||||
|---|---|---|---|---|---|---|
| Year | Week | Fortnight | 4 wks | Month | Quarter | |
| Lower earnings threshold | £6,240 | £120 | £240 | £480 | £520 | £1,560 |
| Higher earnings threshold | £50,270 | £967 | £1,934 | £3,867 | £4,189 | £12,568 |
When you submit contributions to the dashboard, it’s important you provide the qualifying earnings amount for the contribution period (not the overall yearly salary) in the ‘earnings in contribution period’ column.
For example:
Using qualifying earnings, the minimum contribution rate is 8%. You, the employer, must contribute at least 3%.
If an employee, Faisal, earns £2,000 basic pay in a month, plus £500 commission and £500 overtime. Their pensionable earnings, based on qualifying earnings, and before tax and National Insurance, would be £2,480 (£3,000 - £520).
The employer contribution is 3% of £2,480 (£74.40), and the employee contribution is 5% of £2,480 (£124).
At the other end of the scale, another employee, Renuka, earns £5,000 each month before tax and National Insurance (with no commission or overtime). Their pensionable earnings based on qualifying earnings, would be £3,669 (£4,189 - £520).
The employer contribution is 3% of £3,669 (£110.07), and the employee contribution is 5% of £3,669 (£183.45).
If you deduct contributions via relief at source, the employee contribution is reduced by the 20% made up of tax relief. So the employee’s contribution becomes 4% (80% of 5% = 4%).
This makes the employee contribution for Faisal £99.20 (4% of £2,480 = £99.20).
And for Renuka £146.76 (4% of £3,669 = £146.76).
Total pay includes all the money an employee is paid. It includes employee earnings, holiday pay and statutory benefits (like statutory sick pay or statutory maternity pay). It also includes bonuses, overtime payments and commission they may earn. The minimum contribution rate is 7%, with an employer contribution of at least 3%. The remainder is made up with the employee's contribution.
For example:
If an employee, Faisal, earns £1,000 basic pay (before tax and National Insurance), plus commission of £200 and bonus of £100, then their pensionable earnings are £1,300.
The employer contribution is £39 (3% of £1,300 = £39).
The employee contribution is 4% (the minimum 7% rate, less the employer’s 3%).
If you deduct contributions via relief at source, the employee contribution is reduced by the 20% made up of tax relief. So the employee’s contribution becomes 3.2% (80% of 4% = 3.2%).
For Faisal, in our example, their contribution would be 3.2% of £1,300 = £41.60
The minimum contribution rate is 9% of an employee’s basic pay, at least, and from their first £1 of earnings. An employer must contribute at least 4%, and the remainder is made up with the employee's contribution.
For example:
If an employee, Faisal, earns £1,000 basic pay (before tax and National insurance), plus commission of £200, then their pensionable earnings are £1,000.
The employer contribution is £40 (4% of £1,000 = £40).
The employee contribution is 5% (the minimum 9% rate, less the employer’s 4%).
If you deduct contributions via relief at source, the employee contribution is reduced by the 20% made up of tax relief. So the employee’s contribution becomes 4% (80% of 5% = 4%).
For Faisal, in our example, their contribution would be 4% of £1,000 = £40
The minimum contribution rate is 8% of an employee’s basic pay, at least, and from their first £1 of earnings. An employer must contribute at least 3% and the remainder is made up with the employee's contribution.
For example:
If an employee, Faisal, earns £1,000 basic pay (before tax and National insurance), plus commission of £200, then their pensionable earnings are £1,000. The employer contribution is £30 (3% of £1,000 = £30).
The employee contribution is 5% (the minimum 8% rate, less the employer’s 3%).
If you deduct contributions via relief at source, the employee contribution is reduced by the 20% made up of tax relief. So the employee’s contribution becomes 4% (80% of 5% = 4%).
For Faisal, in our example, their contribution would be 4% of £1,000 = £40
No matter how often employees are paid – whether it’s weekly, fortnightly etc - you only need to make one monthly contribution submission to the dashboard.
As an example, an employee, Faisal, is paid weekly and has pensionable earnings as follows:
- Week 1 £275.00
- Week 2 £325.00
- Week 3 £275.00
- Week 4 £275.00
- Week 5 £100.00
Add together the pensionable earnings for the contribution period being submitted which gives a total of £1,250.
Pensionable earnings for employees paid weekly or fortnightly will change depending on whether there are 4 or 5 weeks in the month.
If your scheme is based on Qualifying Earnings, you also need to consider the higher and lower earnings thresholds that apply to your pay frequency.
The Pensions Regulator provides examples of these thresholds of qualifying earnings for different pay reference periods.
If qualifying earnings is your definition of pensionable pay, you’ll exclude earnings below the lower earnings threshold, and above the upper earnings threshold.
The Pensions Regulator provides examples of lower and higher thresholds of qualifying earnings for different pay reference periods. For the current tax year, these are:
| Pay reference period | ||||||
|---|---|---|---|---|---|---|
| Year | Week | Fortnight | 4 wks | Month | Quarter | |
| Lower earnings threshold | £6,240 | £120 | £240 | £480 | £520 | £1,560 |
| Higher earnings threshold | £50,270 | £967 | £1,934 | £3,867 | £4,189 | £12,568 |
When you submit contributions to the dashboard, it’s important you provide the qualifying earnings amount for the contribution period (not the overall yearly salary) in the ‘earnings in contribution period’ column.
For example:
Using qualifying earnings, the minimum contribution rate is 8%. You, the employer, must contribute at least 3%.
If an employee, Faisal, earns £2,000 basic pay in a month, plus £500 commission and £500 overtime. Their pensionable earnings, based on qualifying earnings, and before tax and National Insurance, would be £2,480 (£3,000 - £520).
The employer contribution is 3% of £2,480 (£74.40), and the employee contribution is 5% of £2,480 (£124).
At the other end of the scale, another employee, Renuka, earns £5,000 each month before tax and National Insurance (with no commission or overtime). Their pensionable earnings based on qualifying earnings, would be £3,669 (£4,189 - £520).
The employer contribution is 3% of £3,669 (£110.07), and the employee contribution is 5% of £3,669 (£183.45).
If you deduct contributions via relief at source, the employee contribution is reduced by the 20% made up of tax relief. So the employee’s contribution becomes 4% (80% of 5% = 4%).
This makes the employee contribution for Faisal £99.20 (4% of £2,480 = £99.20).
And for Renuka £146.76 (4% of £3,669 = £146.76).
Total pay includes all the money an employee is paid. It includes employee earnings, holiday pay and statutory benefits (like statutory sick pay or statutory maternity pay). It also includes bonuses, overtime payments and commission they may earn. The minimum contribution rate is 7%, with an employer contribution of at least 3%. The remainder is made up with the employee's contribution.
For example:
If an employee, Faisal, earns £1,000 basic pay (before tax and National Insurance), plus commission of £200 and bonus of £100, then their pensionable earnings are £1,300.
The employer contribution is £39 (3% of £1,300 = £39).
The employee contribution is 4% (the minimum 7% rate, less the employer’s 3%).
If you deduct contributions via relief at source, the employee contribution is reduced by the 20% made up of tax relief. So the employee’s contribution becomes 3.2% (80% of 4% = 3.2%).
For Faisal, in our example, their contribution would be 3.2% of £1,300 = £41.60
The minimum contribution rate is 9% of an employee’s basic pay, at least, and from their first £1 of earnings. An employer must contribute at least 4%, and the remainder is made up with the employee's contribution.
For example:
If an employee, Faisal, earns £1,000 basic pay (before tax and National insurance), plus commission of £200, then their pensionable earnings are £1,000.
The employer contribution is £40 (4% of £1,000 = £40).
The employee contribution is 5% (the minimum 9% rate, less the employer’s 4%).
If you deduct contributions via relief at source, the employee contribution is reduced by the 20% made up of tax relief. So the employee’s contribution becomes 4% (80% of 5% = 4%).
For Faisal, in our example, their contribution would be 4% of £1,000 = £40
The minimum contribution rate is 8% of an employee’s basic pay, at least, and from their first £1 of earnings. An employer must contribute at least 3% and the remainder is made up with the employee's contribution.
For example:
If an employee, Faisal, earns £1,000 basic pay (before tax and National insurance), plus commission of £200, then their pensionable earnings are £1,000. The employer contribution is £30 (3% of £1,000 = £30).
The employee contribution is 5% (the minimum 8% rate, less the employer’s 3%).
If you deduct contributions via relief at source, the employee contribution is reduced by the 20% made up of tax relief. So the employee’s contribution becomes 4% (80% of 5% = 4%).
For Faisal, in our example, their contribution would be 4% of £1,000 = £40
No matter how often employees are paid – whether it’s weekly, fortnightly etc - you only need to make one monthly contribution submission to the dashboard.
As an example, an employee, Faisal, is paid weekly and has pensionable earnings as follows:
- Week 1 £275.00
- Week 2 £325.00
- Week 3 £275.00
- Week 4 £275.00
- Week 5 £100.00
Add together the pensionable earnings for the contribution period being submitted which gives a total of £1,250.
Pensionable earnings for employees paid weekly or fortnightly will change depending on whether there are 4 or 5 weeks in the month.
If your scheme is based on Qualifying Earnings, you also need to consider the higher and lower earnings thresholds that apply to your pay frequency.
The Pensions Regulator provides examples of these thresholds of qualifying earnings for different pay reference periods.