Pensionable Pay

Pensionable pay is the figure your workplace pension scheme uses as the base for percentage contributions. It is set by the scheme's rules, not by HMRC, so it varies from employer to employer. The most common definitions are: (1) Basic pay only - base salary excluding overtime, bonuses and shift premiums; (2) Total pay - basic plus most variable elements; (3) Qualifying earnings - the statutory band used for auto-enrolment minimums (£6,240-£50,270 in 2026/27).

Under auto-enrolment, the scheme must satisfy one of three certification tests if it doesn't simply use qualifying earnings. Tier 1 requires 9% of pensionable pay (with 4% from the employer) where pensionable pay is at least basic pay. Tier 2 requires 8% of pensionable pay where pensionable pay is at least 85% of total pay. Tier 3 requires 7% of total pay. These give employers flexibility while protecting the minimum cash going into pensions.

Worked example: Ravi earns £30,000 basic plus £5,000 in variable bonuses. If his scheme uses qualifying earnings, his pensionable pay is £30,000 + £5,000 − £6,240 = £28,760, and the 5% employee contribution is £1,438. If the scheme instead uses basic pay only at the Tier 1 rate (5% employee), his pensionable pay is £30,000 and the contribution is £1,500 - almost the same. If the scheme uses total pay at 4% (Tier 3), the contribution is £1,400. The choice of pensionable-pay definition affects both contributions and HMRC tax relief, so it is always worth checking your scheme's basis on your benefits portal.