I assume that a Pagan knight wouldn't employ a Chaplain.

1. Would they instead employ some pagan priest(ess) or druid?

2. It would be quite a problem not having anybody in the household who could read, would a pagan knight hire a chaplain solely for this purpose?

3. If they do employ a priest(ess) or druid, would that net them any special benifit like the christian chaplain have some rudementary reading skills?

4. If they employ neighter, would they then just have an additional 1£ of discretionary income?

Any help would be much appriciated.

I think a druid is bit too high up in the scale.

I'd let them hire a scribe (a clerk) to cover the reading needs, or a (lower tier) pagan priest/ess, or even a beginning bard. I'd probably be OK with them hiring another entourage member that they feel fits the character, but then I might come up with situations where that reading skill would be useful to have, from time to time.

I'd be hesitant to simply let them cash in the money, but whatever works in your campaign.

Also, another question is, what is the religion of the wife? She might wish to have a chaplain around, even if the pagan knight himself couldn't care less.

I think I would just explain the £1 as those funds necessary to support the knight's religious activities. Even if he doesn't maintain a priestess in house, he still probably make donations to some nearby priestess or druid. Some of the funds support a clerk or the household would just be less efficient with no one doing or assisting the lady in doing the accounting.

Key thing to remember about most of the KAP and BoEstate economics rules is that they are NOT really meant to be used for fine-scale manor/estate management. Most of the details are 'fluff' (not meant in a derogatory manner here) and meant to give an idea of what a household might look like, which obviously helps with role playing and defining the knight's environment. You are not supposed to be able to dump your chaplain and save £1. The only real rule is that £10 = 1 knight, 1 squire, their horses, 2 foot soldiers and one garrison soldier.

Of course, YPMV. You could dump the chaplain, but it seems like there should be some repercussions. If it is a pagan area, perhaps the local faeries get up set and curse your cows, and each year after the first you lose a cumulative £0.5 (0.5 yr 1, 1.0 yr 2, 1.5 yr 3) of income until you set up a priestess? If you're in a Christian area, Christian peasants might see you as a godless heathen and cause a similar effect though work slowdowns etc. Obviously the specific effect will depend on how you define religion etc in your version of the KAP world.

NT

In my campaign, you get a chaplain as Christianity is the official religion, and by God, the Count means to make sure your soul is looked after. You many be inwardly Pagan, but as a knight you represent the values of your liege, and he is Christian, so you pay lip service to all those protocols. I took my lead from Book of Uther, where Uther has chaplains even though he doesn't want them.

1. The most important function of a chaplain is to read and write. Religious functions are secondary.
2. Why be prejudicial? Christian and Pagan knights ride together. KAP officially de-emphasizes religious conflict. Just find a monk who isn't very religious himself to do the reading and writing. There would be plenty.

Also, it's possible that at least some of the peasantry are christian, so supporting a Chaplin would be expected.