What does the Pension Section need to be made aware of on a monthly basis?
Each Scheme member has their own computerised pension record, and the information held on that record determines their ultimate pension benefits when they leave or retire, and also impacts on information provided on an annual pension statement. Also your end of year return would not agree with pension records, and so you could be contacted at year end, causing you extra work. It is therefore crucial that all relevant changes in respect of the scheme member and their employment are relayed to the Pension Section.
As a result, there is a monthly e-spreadsheet which all of our employers and out-sourced colleges are required to complete and return to us. The form is referred to as the Monthly Pensions Return.
The form includes:
- Full details of all new pension scheme starters for the previous month
- Full details of all scheme opts-outs not previously included on past returns
- Change of address, marital status, and other personal details
- Dates of approved unpaid leave of absence: nil pay child related leave and approved leave including additional purchased leave
Periods of reduced or nil pay due to sickness absence or child related leave
If a member moves to a period of reduced contractual pay or nil pay as a result of sickness or injury; or reduced pensionable pay during relevant child related leave (i.e. ordinary maternity, paternity or adoption leave and any paid additional maternity, paternity or adoption leave) payroll should be notified of the date of the reduction and the requirement to apply Assumed Pensionable Pay (APP) for pension purposes.
Note this does not include the unpaid additional maternity, paternity or adoption leave available at the end of relevant child related leave; this is to be treated as unpaid leave of absence and no APP accrues during that period.
If the member was in the 50/50 section prior to dropping to nil contractual pay because of sickness or child related leave of absence they should be returned to the main section from the beginning of the next pay period if they are still on no pay at that time.
The idea of APP is that the benefits calculated that year for the member are not adversely affected because they have been absent from work.
For Reserve Forces Leave contact the Pensions Section for advice.
Periods of nil pay during maternity absence and child related leave and approved leave of absence
Employees in the scheme may choose to buy extra pension using Additional Pension Contributions (APCs) (with or without a contribution from the employer) in the following circumstances:
- Approved unpaid leave of absence
- Any period of unpaid maternity leave or child related leave
This does not apply to reduced nor nil pay due to sickness or reduced pay due to maternity leave or child related leave. Other protections are in place for these situations.
Where an employee elects to pay an APC to purchase any or the full lost amount of pension, the employer shall pay 2/3rds of the cost of the APC (a shared cost APC). The amount of lost pension shall be calculated as 1/49th of the APP for the period of unpaid leave if they were in the main section during that period, or 1/98th of the APP for the period of unpaid leave if they were in the 50/50 section during that period. Note that an employee can commence a shared cost APC in this circumstance even if they are in the 50/50 section.
KIT DAYS - If the scheme member does have any paid KIT days in an unpaid period of additional maternity leave, these will need to be discounted when calculating the pay lost in order to count this as pensionable service.
What counts as approved leave of absence?
As a general guide, the period of absence should be:
- Agreed by a chief officer.
- The period has been defined.
- Continuity of service continues for contractual and statutory rights.
- No pay to be received during the period.
- The person returns to their same job on the same conditions of service at the end of the absence.
Anything other than above is not approved leave of absence and does not involve the option of a shared cost APC.
Industrial action
A member can always pay contributions to make up for pay lost following industrial action. In all cases the member pays the full cost, there are no additional employer contributions due.
Where an employee takes strike action, employers will be asked to inform members that they may choose to buy extra pension to replace the amount lost. Employers will be asked to provide Pension Section with a list of those members and the amount of pay lost so that Pension Section can make the calculations and provide payroll sections with the amount of buyback to be deducted. This is called an Additional Pension Contribution (APC).
Employers will also need to provide Pension Section with a list of those members who have chosen not to repay.
Please note that an employee can commence an APC in this circumstance even if they are in the 50/50 scheme.
It is strongly recommended that the pension repayment issue not be addressed until the dispute is settled, and all missing days are dealt with in one single process and assessment. Elections should be made within 30 days of the close of the dispute.
Assumed Pensionable Pay (APP)
If an employee moves to a period of reduced contractual pay or nil pay as a result of sickness or injury; or reduced pensionable pay during relevant child related leave (i.e. ordinary maternity, paternity or adoption leave and any paid additional maternity, paternity or adoption leave) payroll should be notified of the date of the reduction and the requirement to apply Assumed Pensionable Pay (APP) for pension purposes.
The idea of APP is that the benefits calculated that year for the member are not adversely affected because they have been absent from work.
Note this does not include the unpaid additional maternity, paternity or adoption leave available at the end of relevant child related leave; this is to be treated as unpaid leave of absence and no APP accrues during that period.
If the member was in the 50/50 scheme prior to dropping to nil contractual pay because of sickness they should be returned to the main section from the beginning of the next pay period (provided they are still on no pay at that time due to sickness).
For Reserve Forces Leave contact the Pensions Section for advice.
APP is calculated as an annual rate then applied to the relevant period as a proportion of that rate.
You will be required to supply APP figures if applicable on an annual basis, and also upon leaving the scheme.
Examples and calculations:
In the following notes APP is Assumed Pensionable pay. This will be required on the end of year returns and/or the ePen3 Scheme Leavers form when a member leaves or retires and an entitlement to APP applies.
On the end of year return, APP must be shown as either CPP1 or 2
CPP1 is the cumulative pensionable pay in the Main Scheme
CPP2 is the cumulative pensionable pay in the 50:50 Scheme
The annual rate of APP is calculated as follows:
Weekly paid - calculate the average of the pensionable pay for the 12 complete pay periods prior to the relevant event after removing any pensionable lump sum payments. Gross up to an annual figure. If 12 complete pay periods do not exist use whatever number of complete periods are available.
The relevant event is the date on which the employee drops to reduced contractual pay or nil pay due to sickness or injury, or reduced or nil pensionable pay during relevant child related leave* (i.e. ordinary maternity, paternity or adoption leave and any paid additional maternity, paternity or adoption leave), or the date the member commenced reserve forces service leave.
* this does NOT include the unpaid additional maternity, paternity or adoption leave available at the end of relevant child related leave; this is to be treated as unpaid leave of absence and no APP accrues during that period.
Monthly paid - For a monthly paid employee three complete pay periods should be used instead of 12 but the calculation is the same.
Note: the calculation of APP can include pensionable pay prior to 1 April 2014 (i.e. where the 12 weeks / 3 months goes back beyond 1 April 2014). This caters, for example, for members who would be on APP from day one of the 2014 Scheme (because on 1 April 2014 they are already on reduced contractual pay or no pay due to sickness or injury). If pensionable pay prior to 1 April 2014 is included it is the pensionable pay as defined under the LGPS (Benefits, Membership and Contributions) Regulations 2007 that is included (not what the pre 1 April 2014 pensionable pay would have been if it had been determined under the definition of pensionable pay in the LGPS Regulations 2013).
Example (a) – A monthly paid employee has received the following pensionable pay in the three complete months prior to the relevant event.
Month 1 £1,400, Month 2 £2,500 including a £1,000 regular annual bonus and Month 3 £1,400.
The calculation of APP is as follows:
Annual rate of APP = (£1,400 + £1,500 + £1,400)/3 *12) = £17,200
Note that the £1,000 bonus is removed prior to the averaging and grossing up calculation. This is because the £1,000 has already been included in the CPP prior to going on to APP and so it would be inappropriate to include it again in the calculation of APP (as to do so would result in double counting).
APP may be increased at the time of calculation where the employer, at their sole discretion, decides to add back into the APP any regular lump sum payment made in the last 12 months. The employer must determine at the point APP commences that where there is a ‘reasonable expectation’ that a regular lump sum payment received in the previous 12 months would be paid again during the period where APP applies this is added back into the APP annual rate figure.
Example (b) – In example (a), the member received a regular annual bonus of £1,000 in the period before going on to APP. In calculating the flat rate average APP the lump sum was removed. In deciding whether or not the lump sum should be added back into the APP annual rate the employer should reasonably assess if in their view the employee will still be on APP the next time the lump sum is due to be paid. Therefore if in the employer's reasonable assessment the period of APP will extend to 11 months or more and the £1,000 bonus would have been paid again then the amount should be added back into the annual APP rate i.e.
Annual rate of APP = (£1,400 + £1,500 + £1,400)/3 *12) = £17,200 + £1,000 (future bonus) = £18,200
Proportioning
When determining the proportion of the annual APP rate to be added to the CPP the same method used for determining part periods for other reasons should be maintained. Therefore, if you need to calculate one day’s APP use whatever method you would normally use to calculate one day’s pay from an annual rate.
Example (c) – A monthly paid employee drops to reduced pay on 15th June and stays on that until 4th September when they return to normal working. The employee is in the main section throughout. CPP1 is therefore accrued as follows:
June – 14 days of Pensionable Pay plus 16 days at the APP rate
July – APP
August – APP
September – 3 days APP plus 27 days of pensionable pay
The 50/50 rule
If the member was in the 50/50 section prior to dropping to nil contractual pay because of sickness or injury they should be placed in the main section from the beginning of the next pay period (provided they are still on no pay due to sickness or injury at that time) and the APP added to CPP1 rather than CPP2 as from the beginning of that pay period.
Example (d) – A monthly paid employee drops to reduced contractual pay due to sickness on 15th June then on 15th September they drop to nil pay. They return to normal working on 1st December. At the date of the relevant event they were in the 50/50 section of the scheme. The CPP accrued throughout is as follows:
June – 14 days of pensionable pay plus 16 days of APP is added to CPP2
July – APP is added to CPP2
Aug – APP is added to CPP2
Sept –APP is added to CPP2
Oct – APP is added to CPP1 (next pay period following the drop to nil pay)
Nov – APP added to CPP1
Dec – PP added to CPP1
Note that the employee remains in the main section unless and until they make another election to return to the 50/50 section.
Exceptions to 50/50 rule for short periods of sickness
The exception to the 50/50 rule above is for short periods of reduction where the employer has a policy of nil pay for the first X days of sickness. In these cases APP is applied in the pay period of reduction even if this is later than the date of the relevant event. Adjustments do not have to made in arrears. The employee does not have to be placed back in the main section if they have elected for the 50/50 section unless the period of unpaid leave due to sickness or injury crosses two pay periods – for example, if an employer has a policy of nil pay for the first 3 days of sickness, if the first 2 days were the last 2 days of one pay period and the third day was the first day of the following pay period, the regulations (as presently written) would require the member be put into the main (100/100) section from the beginning of that next pay period.
Example (e) – An employee is off sick for two days in the middle of June and the employer has a policy of nil pay for the first 3 days of sickness. The adjustment to pay is not done until July when two day’s pay are taken from that month’s payment. The CPP accrued is as follows:
June – PP is added to CPP2
July – PP (which has been reduced by two days) plus 2 days of APP are added to CPP2
Cessation of APP accrual
APP ceases to accrue when a member ceases to be absent on reduced contractual pay or nil pay as a result of sickness or injury; or on ceasing relevant child related leave (i.e. ordinary maternity, paternity or adoption leave and any paid additional maternity, paternity or adoption leave); or on ceasing reserve forces service leave.
Assumed Pensionable Pay where a member retires with a Tier 1 or Tier 2 ill health pension or dies in service
APP will need to be calculated (by the employer - not held on payroll) when an employer terminates an active member’s employment on the grounds of permanent ill-health with a Tier 1 or Tier 2 ill health pension or an active member dies in service. The APP figure is calculated in the normal way but using the average of the pensionable pay for the 12 (weekly) or 3 (monthly) complete pay periods prior to the date of termination / death, to which any regular lump sums which the employer determines there is a 'reasonable expectation' would have been paid to the member are added back into the annual rate of APP. This APP figure is needed to calculate the amount of the enhancement to the benefits due under the LGPS.
What do I need to know if a member undertakes Reserve Forces Special Leave?
For Reserve Forces Leave contact the Pensions Section for advice.
How long must I keep payroll records for pension purposes?
It is vital to keep the payroll records for at least 13 years for most pension scheme members, as their final pensionable pay can be based on the best three year average of their final thirteen years pay, should a reduction in grade have taken place in the 10 years prior to leaving/retirement.
It should be noted that for members issued with a Certificate of Pension Protection (for cases prior to 31 March 2008) it will also be essential for records to be kept for 13 years back from the eventual date of leaving.
In terms of the protections afforded by the changes in 2014, member’s employment histories could be requested by Pension Section in cases where it is thought that the member might have been better off under the old scheme. This basically means that more details, such as part time employment histories, breaks in service etc might be requested for this purpose for members who were aged 55 on 1 April 2012 and who retire before 31st March 2022.
If you are changing your payroll systems, please ensure that histories are archived and obtainable upon request.
What does the Pension Section need to be made aware of on an annual basis?
Each Scheme employer must send to the appropriate administering authority a statement showing, for each employee who have been active members of the Fund during the Scheme year 1 April to 31 March, by 30 April.
However, this is very much the latest date possible, given the amount of work to be undertaken to ensure statutory compliance with benefit statement production and annual allowances, a date earlier than that prescribed should be the aim. A spreadsheet and all accompanying forms for completion and submission are provided annually alongside an Employer Bulletin, to employers.