Employers make contributions to an employee's pension fund based on a percentage of the employee's qualifying earnings. The amount of pay that pension contributions are taken from is called pensionable earnings.
You may choose to base these earnings on the employee's gross qualifying earnings (their total gross pay excluding items such as expenses), or their banded earnings which is the amount of pay after the salary thresholds have been applied. We also allow schemes who have certified under set 1, 2 or 3.
If you have read the information below and are ready to select the pensionable earnings option for your scheme you can do so by logging into your account, choosing Scheme Setup from the main menu and then selecting Pensionable Earnings.
Also known as Gross Qualifying Earnings, this is the amount of pay that the employee typically sees on their payslip.
This includes:
Please note that not all items of pay can be included when calculating pension contributions. Items such as expenses or travel money should be excluded.
This option is selected by default for all new companies that are created.
Banded earnings are earnings that are between the salary thresholds. These amounts are currently: £6,420* and £50,000*. Please make sure your payroll application can make these calculations or use our software to do the calculations for you and add the amounts back into your payroll application.
Example calculations for the two options above.
Mr Banded has Gross Qualifying Earnings (GQE) of £2,500 a month. His pension scheme is setup to use banded earnings, this means salary thresholds for monthly pay reduce this amount to £1,980. This amount is called Pensionable Earnings (PE). His employee and employer contributions are then based on his Pensionable Earnings. This means his total contributions for this pay period are £158.40.
Mr UnBanded has Gross Qualifying Earnings (GQE) of £2,500 a month. As the scheme is set to use unbanded earnings, salary thresholds are not applied to his GQE and his PE is the same amount. His employee and employer contributions for this pay period are £200.
In most cases employers choose one of the two options above.
If you have had help from an adviser or are familiar with self-certification you may choose to base your pensionable earnings on one of these three options.
Please note, if you select the first or second options below you will need to assess and calculate contributions within your own payroll application. The Smart Pension assessment tool only supports the third option.
These options may require the employer to complete Self-Certification, so we strongly encourage employers to investigate this topic or seek guidance from an adviser before continuing gov.uk/money-purchase-schemes-guidance.pdf.
This is a definition of pensionable earnings at least equal to basic pay that includes Salary / Wages, holiday pay as well any statutory payments (such as SMP, SPP, SSP). This definition allows the employer to exclude certain components of pay such as bonuses, overtime, commission and certain allowances.
This is a definition of pensionable earnings whereby the employer certifies to ensure and monitor that at least 85% of total earnings are marked as pensionable in the calculation of contributions.
This is a definition of pensionable earnings where the employer calculates contributions on total earnings.
Smart Pension Limited does not provide investment, financial or any other type of professional advice, and none of the material or content of this website should be taken as providing such advice.
*Please note that the amounts, and salary thresholds used in examples on this page are based upon amounts defined in the 2026/27 tax year and are subject to change in future years.
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