What are pensionable earnings?
Pensionable earnings are the elements of an employee's pay that you use to work out their pension contributions.
Key information
- Discover more about pensionable earnings, the elements of pay used to calculate pension contributions, and the
different ways this can be defined. - Understand what The Pensions Regulator means by qualifying earnings, and when to apply it.
- Employers not using qualifying earnings need to re-certify which definition of pensionable earnings and minimum contribution levels they are using every 18 months or when any changes occur.
Pensionable earnings definitions
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 2025/26 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%.
The Pensions Regulator expects all schemes to meet this minimum contribution level. However, as qualifying earnings can be difficult for employers to administer, they can choose alternative ways of calculating and making pension contributions. These are Total pay, basic pay - 9%, and basic pay - 8%.
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.