Pension contributions on bonus?

aroominyork

My employer has given all staff a half month bonus in their December pay. However December pension contributions (employer and employee) and based on 1 month, not 1.5 months. Is this correct? Is it the employer's choice whether to include the 0.5 month bonus in pension calculations? We use qualifying earnings for pensions, ie the first £6240 of salary is not subject to pension contributions, and outsource payroll.

Also, part of my salary is performance based and I will receive a PRP payment in January (for the first time). Would answers about the 0.5 month bonus apply similarly to my PRP?

amanda1024

According to the Government:

“How much you pay and what counts as earnings depend on the pension scheme your employer has chosen. Ask your employer about your pension scheme rules.

In most automatic enrolment schemes, you’ll make contributions based on your total earnings between £6,240 and £50,270 a year before tax. Your total earnings include:

• salary or wages
• bonuses and commission
• overtime
• statutory sick pay
• statutory maternity, paternity or adoption pay”

So the answer is ‘it depends’ - but there should have been some info from the pension scheme provider when you were enrolled in it. I know for my own employer, our bonuses are non-pensionable - but the employer and employee pension contribution is based on the whole of the basic salary without the £6,240/£50,270 floor/ceiling, so it’s a bit different from the default.

NoMore

Yes, employers do not have to include bonuses for calculating pension contributions.

400ixl

Typically I have always found that company pension contributions are on the base salary only.

aroominyork

400ixl said:

Typically I have always found that company pension contributions are on the base salary only.

Can you comment on that seeming to contradict the government guidance posted by amanda1024?

hugheskevi

It is up to your employer to define what types of payments are pensionable, but this is subject to meeting the automatic enrolment requirements.

Qualifying earnings for automatic enrolment are:

• salary
• wages
• commission
• bonuses
• overtime
• statutory sick pay
• statutory maternity pay
• ordinary or additional statutory paternity pay
• statutory adoption pay

It is recognised that the scheme defintion of pensionable pay may differ from the definition of qualifying earnings. The automatic enrolment requirement is that the employer must self-certify that they meet one of the following tests to be a qualifying scheme. 

Set 1 A total minimum contribution of at least 9% of pensionable pay (at least 4% of which must be the employer’s contribution), or

Set 2 A total minimum contribution of at least 8% of pensionable pay (at least 3% of which must be the employer’s contribution), provided that pensionable pay constitutes at least 85% of earnings (the ratio of pensionable pay to earnings can be calculated as an average at scheme level), or

Set 3 A total minimum contribution of at least 7% of earnings (at least 3% of which must be the employer’s contribution) provided that all earnings are pensionable.

It appears that from what you say that the employer could still meet Set 2 requirements without the bonus being pensionable.

amanda1024

aroominyork said:

400ixl said:

Typically I have always found that company pension contributions are on the base salary only.

Can you comment on that seeming to contradict the government guidance posted by amanda1024?

I’m not particularly surprised that companies are using the flexibility in the rules to save themselves money

aroominyork

hugheskevi said:

It is up to your employer to define what types of payments are pensionable, but this is subject to meeting the automatic enrolment requirements.

Qualifying earnings for automatic enrolment are:

• salary
• wages
• commission
• bonuses
• overtime
• statutory sick pay
• statutory maternity pay
• ordinary or additional statutory paternity pay
• statutory adoption pay

It is recognised that the scheme defintion of pensionable pay may differ from the definition of qualifying earnings. The automatic enrolment requirement is that the employer must self-certify that they meet one of the following tests to be a qualifying scheme. 

Set 1 A total minimum contribution of at least 9% of pensionable pay (at least 4% of which must be the employer’s contribution), or

Set 2 A total minimum contribution of at least 8% of pensionable pay (at least 3% of which must be the employer’s contribution), provided that pensionable pay constitutes at least 85% of earnings (the ratio of pensionable pay to earnings can be calculated as an average at scheme level), or

Set 3 A total minimum contribution of at least 7% of earnings (at least 3% of which must be the employer’s contribution) provided that all earnings are pensionable.

It appears that from what you say that the employer could still meet Set 2 requirements without the bonus being pensionable.

To check I understand, Set 1 means they can exclude bonuses and PRP from pensionable pay so long as the pension contributions on basic pay are at least 9% of which at least 4% are employer contributions?

Hoenir

amanda1024 said:

aroominyork said:

400ixl said:

Typically I have always found that company pension contributions are on the base salary only.

Can you comment on that seeming to contradict the government guidance posted by amanda1024?

I’m not particularly surprised that companies are using the flexibility in the rules to save themselves money

Employers are also liable for the NIC of 13.8% on additional payments. That's not what I'd call saving money. More a cost. 

hugheskevi

aroominyork said:

hugheskevi said:

It is up to your employer to define what types of payments are pensionable, but this is subject to meeting the automatic enrolment requirements.

Qualifying earnings for automatic enrolment are:

• salary
• wages
• commission
• bonuses
• overtime
• statutory sick pay
• statutory maternity pay
• ordinary or additional statutory paternity pay
• statutory adoption pay

It is recognised that the scheme defintion of pensionable pay may differ from the definition of qualifying earnings. The automatic enrolment requirement is that the employer must self-certify that they meet one of the following tests to be a qualifying scheme. 

Set 1 A total minimum contribution of at least 9% of pensionable pay (at least 4% of which must be the employer’s contribution), or

Set 2 A total minimum contribution of at least 8% of pensionable pay (at least 3% of which must be the employer’s contribution), provided that pensionable pay constitutes at least 85% of earnings (the ratio of pensionable pay to earnings can be calculated as an average at scheme level), or

Set 3 A total minimum contribution of at least 7% of earnings (at least 3% of which must be the employer’s contribution) provided that all earnings are pensionable.

It appears that from what you say that the employer could still meet Set 2 requirements without the bonus being pensionable.

To check I understand, Set 1 means they can exclude bonuses and PRP from pensionable pay so long as the pension contributions on basic pay are at least 9% of which at least 4% are employer contributions?

I don't know much about the actual implementation and interpretation of the guidance, but I agree with your understanding here.

eastcorkram

Mine is on basic salary only. I work and get paid overtime every month. This varies month to month, but the OT comes to around £6,000 a year. The pension figure is a % of basic, and never varies.