It is vitally important that this form is filled in by a member of staff who has a full understanding of the LGPS
This page gives information for all payroll staff who complete the Local Government Pension Scheme (LGPS) leavers pay details form, known as the ePen3.
Employers must provide 2 sets of pay calculations:
- One pay figure defined by the 2014 scheme rules
- One pay figure defined by the old pre 2014 rules
The Scheme Leavers form (ePen3) should be completed and returned to the Pension Section for all scheme leavers (excepting those who receive a payroll refund within 3 months of starting).
The form should be completed as accurately as possible, checked or verified if necessary, and also certified. Send the form to the Pension Section as soon as possible to ensure that there’s no unnecessary delay in either notifying the member or paying their benefits.
The details on this form will determine the level of pension benefits paid to a scheme member. The information provided will therefore be checked over by Pension Section staff, and it is recommended that a copy be retained in order to assist with any future queries.
Calculating a final pay figure
The information you submit in this form will determine the level of income your employee will receive as a pension income for the rest of their life.
There are 3 things to consider when calculating a final pay figure:
Accuracy: it’s crucial that the form is filled in as accurately as possible, please take time and care in calculating the final pay.
Fairness: Is the figure a fair representation of what this person has been paying pensions contributions towards? Have they been sick or had child related leave in the final year?
Accountability: if your employee is unhappy with the details you’ve provided they can make a complaint against the employer and lodge an appeal under the Disputes Resolution Procedure.
What is ‘actual pensionable pay’ (PP)?
The definition of what kind of pay is pensionable is basically, the same as the 2008 scheme – i.e. all payments in respect of the job, apart from those listed in the regulations as exclusions. There is one significant change which is that non-contractual overtime has been removed from the exclusions list and so, from 1 April 2014, non-contractual overtime is pensionable.
Familiarise yourself with which elements of pay are pensionable under the 2014 scheme and what are not. If you do discover an error, please do not include it in the pensionable pay, and make sure that the member receives the appropriate refund of pension. A non-pensionable item will not be used to calculate a member’s benefits, even if contributions have been taken.
The period in question is always the actual pensionable pay since the 1 April last passed.
Example:
A monthly paid employee leaves pensionable employment on 30th November. The actual pensionable pay is therefore accrued as follows:
April – 30 days of actual pensionable pay
May – 31 days worth
June – 30 days worth
July – 31 days worth
August – 31 days worth
September – 30 days worth
October – 31 days worth
November - 30 days of worth
If the member has moved between the 50/50 Scheme and the main Scheme since 1 April, a separate calculation for each period will be necessary. You will see the secondary column for this.
Where a final payment is due to be made after the date of leaving please provide as accurate an estimate as possible, and then send a final version once the final amount is known.
Note that unlike in the 2008 scheme, where benefits are based on the pensionable pay due for a period, not pensionable pay received in that period, benefits in the 2014 CARE scheme will be calculated based on the pensionable pay that is received in the Scheme year (1 April to 31 March) and not the pay that was due during that period. There is therefore no need to adjust pensionable pay on payment of arrears or other payments which are paid in the current pay period but not related to the current pay period.
Please note, however, that any pensionable pay received after 31 March 2014 that relates to a period prior to 1 April 2014 should not be included in this pensionable pay calculation.
Please be aware that if the member has had 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) during the final pay period, steps need to be taken to ensure that the pay that you calculate for the member is unaffected by these situations having taken place. Please read on further to find out more about what is called Assumed Pensionable Pay (APP).
Assumed pensionable pay (APP)
If the member has had 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) during the final pay period, steps need to be taken to ensure that the pay that you calculate for the member is unaffected by these situations having taken place.
There is therefore the requirement to apply what is called 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.
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.
APP will need to be calculated by the employer 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.
Calculating assumed pensionable pay (APP)
APP is calculated as an annual rate then applied to the relevant period as a proportion of that rate. 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).
Calculating APP for Returning Officers, Clerk to Governors and any other fees based members
Calculate the average of the pensionable pay for the 36 complete pay periods prior to the relevant event after removing any pensionable lump sum payments. Gross up to an annual figure. If 36 complete pay periods do not exist use whatever number of complete periods are available.
Employer discretions when calculating APP
There are 3 discretions an employer can exercise when calculating the APP figure to ensure fair treatment of members and employers alike. For best practice, we recommend that our employers do utilise these polices when calculating APP. The 3 discretions are:
Adding in a regular payment
APP may be increased at the time of calculation where the employer decides to include in 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 can then be added into the APP annual rate figure.
Example - the member received a regular annual bonus of £1,000 early in the 12 month period before going on to APP. In calculating the flat rate average APP the lump sum was therefore absent. 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.
Annual rate of APP = (£1,400 + £1,500 + £1,400)/3 *12) = £17,200 + £1,000 (future bonus) = £18,200
Removing a regular payment so that it is not counted twice
Where a regular lump sum payment has already been paid during the 3 month/12 week period upon which APP has been based, as this will be included in the PP amount calculated prior to the period of APP, it would be inappropriate to include it again in the calculation of APP, as to do so would result in double counting. The employer can therefore choose to exclude it from APP.
General discretion on APP if pay member would normally have received is higher
Where the pensionable pay received by a member during the period prior to the reduction in pay which is being used as the basis of the APP figure was, in the opinion of the scheme employer, materially lower than the level of pensionable pay that member normally received, the employer may substitute for the pensionable pay the member received, a higher level of pensionable pay to reflect the level of pensionable pay that the member would normally have received.
It is recommended that employers have an internal policy on the use of these discretions to ensure equal treatment in all cases.
Applying assumed pensionable pay
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:
A monthly paid employee drops to reduced pay on 15 June and stays on that until 4 September when they return to normal working. They leave pensionable employment on 30 November. The pensionable pay is therefore accrued as follows:
April – 30 days of Pensionable Pay PP
May – 31 days of PP
June – 14 days of PP plus 16 days at the APP rate
July – 31 days of APP
August – 31 days of APP
September – 3 days APP plus 27 days of PP
October – 31 days of PP
November 30 days of PP
For those with membership prior to 1 April 2014 - What is the ‘final pay period’?
The Regulations state that “a member’s final pay period is the year ending with the day on which he stops being an active member”. There are some exceptions (detailed later), but this rule will suffice for the vast majority of the cases that you deal with.
For those with membership prior to 1 April 2014 - What is the ‘final pay’?
Pay is defined as: “all the salary, wages, fees, and other payments paid to him for his own use in respect of his employment”. The exceptions are those specified as exclusions.
There is one significant change from April 2014 is that non-contractual overtime was removed from the exclusions list and so, from 1st April 2014, non-contractual overtime became pensionable. However for the purpose of this part of the form, if there is any non-contractual overtime, this should not appear in your calculations as it is not pensionable under the 2008 regulations.
Familiarise yourself with which elements of pay are pensionable and what are not. If you do discover an error, please do not include it in the pensionable pay, and make sure that the member receives the appropriate refund of pension. A non-pensionable item will not be used to calculate a member’s benefits, even if contributions have been taken.
The simplest example is a final pay calculation for a monthly paid salaried employee. This example displays the principles involved in calculating a pensionable pay.
Member leaves 15.12.16
Salary 1.4.15 £14196
Salary 1.4.16 £14931 (Increment)
What is the final pay period?
The final pay period is 16.12.15-15.12.16
What is the final pay?
16.12.15 - 31.3.16 (3 months and 16 days) £14196 x 3 & 16/31 £3549 + £610.58
1.4.16 - 15.12.16 (8 months and 15 days) £14931 x 8 & 15/31 £9954 + £602.06
TOTAL £14715.64
The figure is a correctly proportioned figure somewhere between both salaries, slightly nearer the first figure as you would expect as they earned that salary for a longer period.
That is the pay which is used to calculate the pension. It’s not the salary they are on for their final day of employment, despite the term 'final pay'.
People get paid in different ways, weekly, monthly, in arrears, salaried, timesheet based, – but essentially despite how the person is paid, the same objective should be in sight.
Once you’ve got the principal you should be able to complete the form problem. It’s only when some familiar oddities crop up that it can go wrong. There are seven main factors. You can account for these by reading the following sections.
What happens if the member is part time?
In the case of a part time employment, you will be aware that the final pay is the pay which would have been paid for a comparable whole time employment. If your employee is paid on salary for example, with no extra payments or enhancements, then simply use the example above, calculate the pensionable pay on the whole time equivalent salaries, and ignore the fact that the member is part time in the pay calculation. This is the easiest and quickest method. If it’s easier to attach a spreadsheet then please do.
Reduced pay due to sickness or maternity in the final 12 months
Any reduction or suspension of pay due to sickness or injury must be ignored. The pay must include those pensionable earnings that the employee would normally have expected to earn, under the terms of their contract. So please provide a notional pay, stating the whole time equivalent pay the member would have received had they not been on sick leave.
Over the period where maternity pay or reduced pay was paid, this should be classed as full pay when calculating a pensionable pay figure. Please provide a notional full time equivalent pay, therefore reflecting the pay point the member would have received had they not been on maternity leave.
Unpaid leave in the final 12 months
Only a no-pay period will count as a break in pensionable service unless the member has repaid pension contributions on their return (occurs after maternity leave and other types of approved leave). Remember to check if this is the case before you begin, as you will need to establish the correct ‘final pay period’ first.
If there’s no break, or if the member has repaid, the final pay period is one year back from the date of leaving, with a notional whole time equivalent pay figure.
In cases where the member does not return to work or leaves soon after returning, the pensionable pay period is one year back from the date of leaving, even if that covers a no pay period. Please therefore provide the (notional if necessary) pay that was earned in the final 12 months, clearly stating the dates of the no-pay period. The final pay is the pay they did receive in their final year, up rated to 365 days.
Is the final years pay always used to calculate a member’s benefits?
Normally, yes but under the pension scheme regulations all employees are able to count the best of the last three years pay figures to be used in the calculation of their pension benefits. Each year again ends with the anniversary of the date of leaving.
Have a look at the last two year's whole time equivalent pay figures, if they are higher, and it’s not due to anything which should not be there – such as back pay, contact us to see if we think a previous years pay may be required. This could save us raising a subsequent query.
Should a member have chosen to take on a job on a reduced grade, (or the employer has reduced either the pay or payments that are specified in the contract of employment as being pensionable) during their final 10 years before they leave, and they have been continuously employed, an earlier pay figure may be chosen, going back up to 13 years.
This is the average pay over a 3 year period ending with the date 31 March. If you are aware of this circumstance, then bring it to the attention of the Pensions Section, to discuss whether an earlier pay could apply. However, in the majority of cases, this will not apply, and the final pay calculation will be all that is required. If the Pensions Officer processing the leaver's benefits suspects that an earlier pay may be applicable, they will contact the employer and ask for it to be investigated. NB: This Regulation is limited to changes that fall within 10 years of the member leaving or retiring, and cannot be used because of a drop in pay following what was a temporary increase.
Certificate of protection on a members file
In certain circumstances where an employee's pay or grade is reduced as a result of circumstances beyond his or her control, an employing authority may issue a Certificate of Protection, which effectively provides a further 10 years previous pay figures to be assessed when producing the final whole time equivalent pay to be used. It is crucial that the pay reduction must have occurred within 10 years of retirement or leaving the scheme for the certificate to be applied. This was available only to scheme members who suffered a reduction to their grade prior to 31 March 2008.
The Regulations stated that:
Where a certificate has been issued… (the member) may elect that their final pay period should be-
(A) a year ending with a day-
(i) falling within the period of 5 years ending with the last day he was an active member, and
(ii) of which that last day is the anniversary; or
(B) the average pay of any three consecutive years-
(i) falling within the period of 13 years ending with the last day he was an active member, and
(ii) ending with a day of which that last day is the anniversary.
If you think you have a case like this, ring the Pension Section for detailed advice, and we will help you and have a look through it with you. It is not always clear which year is best, and we are there to help.
It will help avoid delays – and remember, as the pay figures we are looking at have already passed, these can be calculated in advance.
What do I need to do if there has been an honorarium paid in the final year?
If there is an honorarium in the final year, then please make sure it should be pensionable. Details about the nature of the payment should be attached. It could save us coming back to you.
If it is indeed non pensionable under the 2008 definition, then please do not include it in the final pay, and arrange for a refund of contributions to be made to the member if contributions have been taken in error. Remember to put a note on the ePen3 however, so that we know what has happened.
If you are happy with the terms of the payment, then make sure that it relates to work carried out during the final pay period and only include that which is relevant to it.
What happens when a pay increase is late and arrears are paid in the final 12 months?
On the general subject of back pay, always keep in mind the ‘final pay period’. If there are any arrears of pay, such as a late pay award, a late re-grade, paid in the final 12 months, it may be that some, or even all of that money is actually in respect of work carried out before the final pay period. Remember to only include the relevant part.
For example, if it is a late pay award year, with arrears paid in say, August, and if someone leaves the following May, the final pay period is 1 June - 31 May. Some of those August arrears apply to the previous April and May – and so should not be included in the final pensionable pay figure.
What do I do if the member has pensionable service of less than a year?
It is becoming more common for members to have a ‘final pay period’ of less than a year. This could apply to members on short term contracts, those who resign before the end of their first year, or those members who choose to opt out of the Pension Scheme after the first 3 months, but before the end of 12 months.
These cases are actually quite straightforward, and you need do no more than state the pensionable pay for the part year period.
And should it be an opt-out case, please remember to forward a copy of the employee’s written request to leave the scheme.
What is different when calculating a pensionable pay for Returning Officers and Clerk to Governors?
Returning Officers and Clerk to School Governors are paid by way of fees, and their pensionable pay is calculated differently to main scheme members.
You will need to provide a breakdown of the amount, and relevant date of each payment earned during the final 3 years prior to leaving.
However, with the employer’s permission, an earlier pay figure may be chosen. This is the average pay over a 3 year period ending with the date 31 March. If the Pensions Officer processing the leaver's benefits suspects that an earlier pay may be applicable, they will contact the employer and ask for it to be investigated.