Workplace pension contributions - Opting out of qualifying earnings cap

jjne

I recently asked to increase my contribution to my works pension, and was advised by our HR that my "pension contributions are currently capped using the “qualifying earnings” calculation - you may want to consider lifting the cap and moving from the qualifying calculation to either base pay or all pay elements as this may benefit you."

What exactly is the consequence of this? I thought the only benefit of any such pension was that 20% of tax on any deposit, and some of the NI contribution would be returned to the payslip, and as such I'm not entirely sure what advantage lifting of the cap would provide.

What are they trying to tell me here? Any advice gratefully received.

Marcon

jjne said:

I recently asked to increase my contribution to my works pension, and was advised by our HR that my "pension contributions are currently capped using the “qualifying earnings” calculation - you may want to consider lifting the cap and moving from the qualifying calculation to either base pay or all pay elements as this may benefit you."

What exactly is the consequence of this? I thought the only benefit of any such pension was that 20% of tax on any deposit, and some of the NI contribution would be returned to the payslip, and as such I'm not entirely sure what advantage lifting of the cap would provide.

What are they trying to tell me here? Any advice gratefully received.

It sounds as if you and your employer are currently paying contributions based on something known as 'band earnings' - ie contributions are only being paid by you and your employer on pay between £6,240 and £50,270. Or it could mean your salary for pension purposes is capped at £50,270 if you earn more than that - I can't tell from your post which it is.

Your HR team have asked if you'd like to change that and pay contributions based on your whole earnings, or possibly on base salary excluding any 'perks' you might receive such as bonus, car allowance or whatever.

What isn't clear is whether 'lifting the cap' as they suggest would apply to both you and the employer (ie the employer would pay more if you do). You'd need to check that point.

It also sounds as if you are paying by salary sacrifice rather than having personal contributions deducted directly from your salary, but the comments above still hold good.