Pensions: Key Concepts, Glossary, and Terminology

Modified on Fri, 17 Oct at 1:30 PM

If you're new to payroll and pensions, this article will explain some of the key terminology that you may not be familiar with.

Auto-enrolment: A legal requirement where employers must automatically enrol eligible employees (aged 22-65, earning above the threshold) into a qualifying pension scheme, though employees can opt out. The system assesses eligibility based on age and earnings, with employers contributing alongside employee deductions.

Banded pension scheme: A pension arrangement where employee contribution rates vary based on salary ranges or "bands" rather than using a single fixed percentage for all members.

Contractual enrolment: Pension scheme membership that's written into an employee's terms and conditions of employment, typically in public sector roles like teaching where joining the Teachers' Pension Scheme is a contractual obligation. Unlike auto-enrolment, employees are expected to participate as part of their employment agreement, often with higher contribution rates and employer contributions.

PSTR: A unique reference number provided by HMRC when your scheme has been registered for tax relief and exemptions.

Relevant pay: (also called pensionable pay) refers to the specific salary and wage components that are used to calculate pension contributions and benefits.

Salary sacrifice: An arrangement where an employee agrees to give up part of their gross salary in exchange for the employer paying an equivalent amount directly into their pension, reducing the employee's taxable income and National Insurance contributions. This typically results in higher net take-home pay and increased pension contributions compared to making pension contributions from after-tax salary, while also saving the employer on National Insurance contributions.

Scheme parts: The individual types of contributions make up a pension scheme in Cintra iQ. For example, standard employee contributions, additional voluntary contributions, or employer matching contributions.