Qualifying Earnings for Pensions
What are qualifying earnings? Understand how pension contributions are calculated for auto-enrolment.
Last updated: 30 January 2025
Qualifying earnings determine how pension contributions are calculated.
What Are Qualifying Earnings?
Definition
| Feature | Detail |
|---|---|
| Earnings band | For contributions |
| Lower threshold | Starting point |
| Upper threshold | Cap |
| Contributions on | Band between |
Current Thresholds (2024-25)
| Threshold | Annual | Monthly | Weekly |
|---|---|---|---|
| Lower (LEL) | £6,240 | £520 | £120 |
| Upper (UEL) | £50,270 | £4,189 | £967 |
How It Works
Contribution Calculation
| Take | Earnings |
|---|---|
| Above | Lower threshold |
| Up to | Upper threshold |
| Calculate | Contributions on this |
Example
| If Earning | Qualifying Earnings |
|---|---|
| £30,000/year | £30,000 - £6,240 = £23,760 |
| Employer (3%) | £712.80/year |
| Employee (5%) | £1,188/year |
Another Example
| If Earning | Qualifying Earnings |
|---|---|
| £60,000/year | £50,270 - £6,240 = £44,030 |
| Capped at | Upper threshold |
| Not on | £60,000 - £50,270 = £9,730 |
What Counts as Earnings
Included
| Element | Include |
|---|---|
| Salary | Yes |
| Wages | Yes |
| Commission | Yes |
| Bonus | Yes |
| Overtime | Yes |
| Statutory sick pay | Yes |
| Statutory maternity pay | Yes |
| Statutory paternity pay | Yes |
| Statutory adoption pay | Yes |
| Statutory shared parental pay | Yes |
Not Included
| Element | Exclude |
|---|---|
| Benefits in kind | No |
| Expense payments | No |
| Employer pension contributions | No |
| Redundancy payments | No |
| Tips from third parties | Usually no |
Monthly Calculation
Monthly Thresholds
| Threshold | Monthly Amount |
|---|---|
| Lower | £520 |
| Upper | £4,189 |
| Band | £3,669 |
Example
| Monthly Salary | Calculation |
|---|---|
| £2,500 | £2,500 - £520 = £1,980 |
| Employer (3%) | £59.40 |
| Employee (5%) | £99.00 |
| Total (8%) | £158.40 |
Weekly Calculation
Weekly Thresholds
| Threshold | Weekly Amount |
|---|---|
| Lower | £120 |
| Upper | £967 |
| Band | £847 |
Example
| Weekly Wage | Calculation |
|---|---|
| £500 | £500 - £120 = £380 |
| Employer (3%) | £11.40 |
| Employee (5%) | £19.00 |
| Total (8%) | £30.40 |
Variable Earnings
Different Each Period
| Situation | Approach |
|---|---|
| Varies monthly | Calculate each month |
| Apply thresholds | Per period |
| High month | More contributions |
| Low month | Less contributions |
Example Variable
| Month | Earnings | Qualifying | Employer (3%) |
|---|---|---|---|
| Jan | £3,000 | £2,480 | £74.40 |
| Feb | £2,000 | £1,480 | £44.40 |
| Mar | £4,000 | £3,480 | £104.40 |
Below Lower Threshold
If Earnings Under £6,240
| Position | Result |
|---|---|
| No qualifying earnings | £0 |
| No contributions | Required |
| Unless | Alternative basis |
Example
| Earning | Qualifying |
|---|---|
| £5,000/year | Below £6,240 |
| Qualifying earnings | £0 |
| Contributions | £0 |
Above Upper Threshold
If Earnings Over £50,270
| Position | Result |
|---|---|
| Capped | At upper |
| Maximum qualifying | £44,030 |
| Extra earnings | Not pensioned |
Example
| Earning | Qualifying |
|---|---|
| £60,000/year | Capped |
| Upper | £50,270 |
| Lower | £6,240 |
| Qualifying | £44,030 |
| Not included | £9,730 |
Bonus Payments
How Treated
| Bonus | Treatment |
|---|---|
| Counts as earnings | Yes |
| In period received | Add to that period |
| May push over | Threshold |
Example
| Month | Salary | Bonus | Total | Qualifying |
|---|---|---|---|---|
| Normal | £2,500 | £0 | £2,500 | £1,980 |
| Bonus month | £2,500 | £2,000 | £4,500 | £3,980* |
*Capped if over monthly upper threshold
Statutory Payments
Included
| Payment | Include? |
|---|---|
| SSP | Yes |
| SMP | Yes |
| SPP | Yes |
| SAP | Yes |
| ShPP | Yes |
Example
| If On SMP | Treatment |
|---|---|
| SMP amount | Counts as earnings |
| Apply thresholds | As normal |
| May be below | Lower threshold |
Annual Review
Thresholds Change
| When | What |
|---|---|
| Each year | Government reviews |
| April | New amounts |
| Usually increase | With inflation |
Keep Updated
| Action | Purpose |
|---|---|
| Check annually | Current thresholds |
| Update systems | Correct calculations |
| From April | New year |
Alternative Bases
Not Using Qualifying Earnings
| Option | Description |
|---|---|
| Tier 1 | Basic pay |
| Tier 2 | Total pay |
| Tier 3 | Pensionable pay |
If Alternative
| Must | Requirement |
|---|---|
| Meet minimums | Overall |
| Certify | Annually |
| Evidence | Compliance |
Summary
Key Points
| Element | Detail |
|---|---|
| Band | £6,240 to £50,270 |
| Contributions on | This band |
| Below lower | £0 qualifying |
| Above upper | Capped |
What Counts
| Include | Exclude |
|---|---|
| Salary, wages | Benefits in kind |
| Bonuses, overtime | Expenses |
| Commission | Employer pension |
| Statutory pay | Redundancy |
Related answers
Alternative Contribution Bases
What are alternative contribution bases? Understand certification options beyond qualifying earnings for pension contributions.
Auto-Enrolment Overview
What is workplace pension auto-enrolment? Understand the UK's automatic enrolment system and employer duties for pension contributions.
Workplace Pension Contributions
How much must employers contribute to workplace pensions? Understand minimum contribution rates and qualifying earnings.
Frequently Asked Questions
- What are qualifying earnings?
- Qualifying earnings are earnings between the lower and upper thresholds (£6,240 to £50,270 for 2024-25) on which pension contributions are calculated. Earnings below the lower threshold or above the upper threshold aren't included.
- What counts as earnings for pension purposes?
- Qualifying earnings include salary, wages, commission, bonuses, overtime, statutory sick pay, statutory maternity/paternity/adoption pay. It doesn't include benefits in kind, expense payments, or employer pension contributions.
- Are the thresholds the same as National Insurance?
- The thresholds are different from NI thresholds, though the upper limit is aligned. The pension thresholds are set specifically for auto-enrolment purposes and are reviewed annually by the government.