Pensionable earnings are the slice of an employee's remuneration that a retirement fund uses as the base for contributions. The fund rules define it - often basic salary, sometimes a broader set of components - and it need not be the whole of remuneration.
What it means
Contributions to a pension or provident fund are usually a percentage of pensionable earnings rather than of total pay. The term retirement-funding income (RFI) describes the same idea from the tax side: the income that is taken into account when working out retirement-funding. Defining pensionable earnings narrowly lowers contributions; defining it broadly raises them.
Where it fits in
Pensionable earnings set the base for the employee and employer retirement contributions each period. Those contributions, in turn, affect the PAYE calculation - the employee's share reduces the taxable base up to the Section 11F cap, and the employer's share is a taxable fringe benefit.
Key rules
- The portion of remuneration a fund bases contributions on, set by the fund rules.
- Often basic salary only, but can be defined more broadly.
- Also called retirement-funding income (RFI) on the tax side.
- Drives both employee and employer retirement contribution amounts.
