Pay Raise Above the Auto-Enrolment Qualifying Earnings Upper Limit

Mr.Saver

I get paid monthly, and my employer only pays the minimum required pension contribution on the qualifying earnings each month.

Before the pay raise, I was earning below £46,350 annually, therefore each month my employer pays 2% of my qualified earnings, which is below £67.20 ((£46,350-£6,032)*2%/12).

The pay raise was in the middle of the 2018-19 tax year. After the pay raise, my annual salary in this tax year will go above £46,350, but my employer only pays £67.20 monthly into my pension from the day I received the pay raise.

I'd like to know how is the minimum required pension contribution calculated? Is it annually?

In my case, if is it calculated annually, at the end of the tax year my employer would have to pay in 2%*(£46,350-£6,032) = £806.36, but from what I can see on my payslips, this is not happening. If it is calculated monthly, I'd lose a part of the employer contribution (compare to get paid annually).

Does anyone know where can I find those information? I've tried search on the HMRC and DWP websites, but I couldn't find any definitive answer.

Mr.Saver

If the minimum is not calculated annually, it would be unfair to people who earn very low basic salary but have big bonus paid infrequently.

For an example, if I have a job that is paid weekly with a very low basic salary - £6,032 annually, and guaranteed big bonuses - £10,000 quarterly. My annual income is effectively £46,032, but my employer would not be required to pay any pension contributions 48 weeks out of the 52 weeks in a tax year. In the 4 weeks which I get paid the bonuses, they would have to pay the contribution, but if they are only legally required to pay 2% on the qualifying earnings in that week, they would only need to pay £15.5 each week. They would be effectively evading their pension contributions. At the end of the tax year, the imaginary employer only needs to pay £62 pension contributions instead of £806.36, isn't this unfair?

molerat

https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/automatic-enrolment/how-much-do-i-and-my-employer-have-to-pay

Mr.Saver

molerat wrote: »

https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/automatic-enrolment/how-much-do-i-and-my-employer-have-to-pay

The page did not answer my questions. It only explains how is the minimum contribution calculated based on annual income, but it didn't mention how is the minimum contribution practically applied in a weekly or monthly pay scenario where gross pay in each payday are not the same amount and only some of them exceeds the qualifying earnings upper limit.

greatkingrat

The minimum required contribution is calculated based on the actual amount earned in the pay period (weekly or monthly). The total amount you earn in the year is irrelevant.

To try and base it on annual earnings would be logistically very difficult, as the total earnings for the year won't be known until the final pay period of the year.

Mr.Saver

greatkingrat wrote: »

The minimum required contribution is calculated based on the actual amount earned in the pay period (weekly or monthly). The total amount you earn in the year is irrelevant.

To try and base it on annual earnings would be logistically very difficult, as the total earnings for the year won't be known until the final pay period of the year.

Thanks, this is exactly what I'd like to know.

So in short, the minimal workplace pension works like the national insurance contribution. It is calculated and deduced based on the earnings in that pay period, not calculated annually like income tax.

Sibbers123

It can be calculated in two ways;

1. On your banded earnings, or
2. on your total earnings

If it is on your banded earnings, any earnings above £503 (off the top of my head - you may want to check) per month will attract pension contributions. To work out the contributions, just deduct £503 from your total income and multiply it by the percentages (it may be slightly different for employee contributions depending if it is a net pay arrangement or tax relief at source).

If it is on total earnings, then all your pay will be used to calculate the pension contributions.

There are special rules for bonuses I believe, but this doesn't appear to be the case on the basis of the facts you have provided.

Mr.Saver

Sibbers123 wrote: »

It can be calculated in two ways;

1. On your banded earnings, or
2. on your total earnings

If it is on your banded earnings, any earnings above £503 (off the top of my head - you may want to check) per month will attract pension contributions. To work out the contributions, just deduct £503 from your total income and multiply it by the percentages (it may be slightly different for employee contributions depending if it is a net pay arrangement or tax relief at source).

If it is on total earnings, then all your pay will be used to calculate the pension contributions.

There are special rules for bonuses I believe, but this doesn't appear to be the case on the basis of the facts you have provided.

Thanks, so my employer must be using the "On your banded earnings" way to calculate it.

Would you mind to share where/how did you find the information? I'm interested in some of the pension and taxation rules' details, but found it's often hard to find those detailed information.