The Salary Calculator

Pension contributions on The Salary Calculator

As I wrote a short while ago, for a long time people have been emailing and requesting that The Salary Calculator offer support for pension contributions. My excuse had always been that pension contributions aren’t as simple as they might seem, but now I have finally tackled the problem.

Deductions made at source for a company pension or other pension scheme are typically a percentage of your salary, and any contributions you make to the pension are not taxed. The complication comes when employers calculate what is called “pensionable pay” – it is a percentage of this that is deducted each paycheck. As you can see in this related article about pensions, this is not necessarily just your annual salary – each employer calculates it differently.

Therefore, the pension deductions which have been added to The Salary Calculator are an estimate. They may match exactly what your employer does, but probably they will not. However, this is an improvement to the calculator in that it can give you a better indication of what your take home pay will be after pension contributions than it could before.

The approach I’ve taken is to take the percentage you enter into the pension field and deduct that percentage from the standard annual salary (i.e. not including any overtime). Therefore, the calculator is assuming that your pensionable pay is the same as your annual salary. If your employer calculates it differently I’m afraid that this estimate won’t be accurate, but it should give you a good indication. Sorry I couldn’t make it more accurate! Get started on The Salary Calculator with pension contributions.

Tags: income tax, Pay As You Earn, pension, Pensions, tax rates, The Salary Calculator

5 Comments to Pension contributions on The Salary Calculator

1. 

   Found the calculator extremely useful.
   However, one of the things I’m trying to do is calculate how much AVC contribution I need to make to keep my taxable pay under the 40% threshold.
   It would be really useful if the calculator offered some sort of ‘flag’ to indicate whether the calculation included some tax in the 40% band. Then by increasing the pension % until the flag dropped I could find the answer easily.

   Many thanks.
John Stevens on November 19th, 2009
2. 

   That’s an interesting thought, John, and I can see a couple of ways to go about it. In a post about new April 2010 tax rates I explained that early next year I’ll be updating the calculator. I will see if I could include some kind of indicator then.
admin on November 19th, 2009
3. 

   it would be great if the calculator could deal with salary sacrifice (http://www.hmrc.gov.uk/specialist/salary_sacrifice.htm) pensions, as this affects the amount of NI and I.T. paid
Andrew on December 23rd, 2009
4. 

   Hi

   Your site is fantastic, but if you can help me with this question, i would be really grateful.

   Just got a job, i start in 5 weeks, the salary is 30k, and they will contribute 13% pension. I dont kbwo if that means i will have to contribute 13% also?

   If it is yes, that would decrease my salary by 3900, would the tax releif cover that?
Ali W on June 5th, 2010
5. 

   Hi Ali,

   In my experience, when a company says that they will contribute a certain percentage to a pension, it normally means that they will contribute the same percentage that you agree to contribute, up to a maximum (in this case 13%). In that case, if you chose to contribute only 6% (say), they would also contribute 6%. However, each company handles these things differently so the best thing to do would be to ask the HR or Payroll department to explain it to you.

   In my blog post above, I explained that amount contributed to the pension is sometimes not as simple as just a percentage of the gross salary (see above), but if it is then 13% would indeed be £3,900 per year. The tax relief would cover this, but it does mean that your take-home pay does not decrease by £3,900 per year. Use the Salary Calculator to see what difference it would actually make to you each month, although as before you would need to check with your employer to see exactly how they calculate the amount to deduct.

   I’m sorry I can’t be more helpful, but because not everyone’s employer handles pension contributions the same way, the Salary Calculator can only give you an indication of what the impact might be.
admin on June 6th, 2010

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