Pension contributions

Once the initial band is set for contributions the employer may review the appropriate band on any material change in pay. In practice this will require a review of the band during a scheme year should the employee have a material change in contractual pay (e.g. a promotion, pay award or contractual hours change). 

However where the initial band was set as an estimate the employer may wish to put in place a process to review the actual pensionable pay being received in order to ensure the correct band is being applied, after 6 months for example. 

Any reductions in pensionable pay due to sickness, or child related leave, reserve forces service leave or other absence from work are to be disregarded when assessing / reviewing the appropriate band. Employers should ensure that any review process is reasonable and consistent in its application. 
Example – The band set on commencement was based on contractual annual pay. However, when the band is reviewed at the end of the year, it is clear that the employee worked a significant amount of non-contractual overtime which would have placed them in the next band up. The employer may choose to use that information to apply that next band up for the following year.

The rate of employer’s contributions is assessed every 3 years as part of the triennial valuation of the Pension Fund and is operative one year after the valuation date. The Pensions Section will notify employing authorities of any change to the employer’s pension contribution rate as soon as the Actuarial Valuation Report is received.

The employer contribution rate will be a percentage of LGPS salary roll.

During a period of sickness, with a member receiving either reduced pay or no pay, or reduced pay due to child related leave, employer contributions should continue to be paid.  This will ensure that an employer is not underfunding the cost of the member's pension benefits at any time.  The level of employer contributions will therefore instead become a percentage of the Assumed Pensionable Pay (APP) that you will have to calculate in cases of sickness, or paid child related leave in order to rebuild pension rights.

Employer contributions are not altered if a member has elected to participate in the 50/50 Scheme.

The definition of Pensionable Pay is all payments in respect of the job, apart from those listed in the regulations as exclusions. There is one significant recent change which is that non-contractual overtime has been removed from the exclusions list and so, from 1st April 2014, non-contractual overtime becomes pensionable.

Another minor change from 2014 is that any actual pay paid by the scheme employer to a reservist during Reserve Forces Service Leave is not pensionable.

Under the Regulations, an employee’s pensionable pay is the total of:

•    all the salary, wages, fees and other payments paid to the employee, and 
•    any benefit specified in the employee’s contract of employment as being a pensionable emolument.

An employee’s pensionable pay does not include:

• any sum which has not had income tax liability determined on it;
• any travelling, subsistence or other allowance paid in respect of expenses incurred in relation to the employment;
• any payment in consideration of loss of holidays;
• any payment in lieu of notice to terminate a contract of employment;
• any payment as an inducement not to terminate employment before the payment is made;
• any amount treated as the money value to the employee of the provision of a motor vehicle or any amount paid in lieu of such provision;
• any payment in consideration of loss of future pensionable payments or benefits;
• any award of compensation (excluding any sum representing arrears of pay) for the purpose of achieving equal pay in relation to other employees;
• any payment made by the Scheme employer to a member on reserve forces service leave;
• returning officer, or acting returning officer fees other than fees paid in respect of—

(i) local government elections, 
(ii) elections for the National Assembly for Wales, 
(iii) Parliamentary elections, or 
(iv) European Parliamentary elections. 

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 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.

Whilst the legislation allows a member to pay up to 100% of their pensionable pay into an AVC each month, the level of pay after other deductions will need to support the chosen level of contribution.

Wrongly deducted pension contributions should be amended as soon as the error has been picked up, as items which are listed as non-pensionable will not be used to calculate a member’s pensionable pay, even if contributions have been deducted.

The Pension Section should be informed of any adjustments made.  The calculations will also need to be attached to the monthly pension contributions return.

Should an adjustment need to be made to a scheme member’s final payment before ceasing their employment, for example in respect of overtaken annual leave entitlement, any pay re-claimed should be taken after pension, tax and National Insurance contributions have been deducted.

Any retrospective payments that come within the definition of pensionable pay must have the relevant employees and employer contributions paid on them. 

If more pensionable payments are made after termination of Scheme membership in a job and after data has already been submitted to the pension fund administering authority, the revised data (if the payment is made in the year of leaving) or new data (if the payment is made in a year after leaving) should be submitted to Leicestershire County Council Pensions together with the date the additional payment was made.
 
The additional pension derived from a retrospective payment made after leaving (e.g. from a backdated pay award or backdated re-grading) is treated as if it were received on the day before the active member left and the pension in the account is retrospectively recalculated which, for a pension already in payment, would require LCC Pensions to calculate and pay any arrears due.

Note that if the member has pre 1 April 2014 membership the retrospective pay will result in a recalculation of the final year’s pensionable pay and any pension already paid in respect of the pre 2014 membership will need to be recalculated and, consequently, arrears of pension paid.

Employers should pay contributions to Leicestershire County Council before the 8th working day of each month. Every month, a breakdown of the amount paid is required, detailing the employee, employer and additional contributions elements of the payment.  Total amounts are sufficient for each monthly breakdown. This should be e-mailed to the Investments team at: carl.gardiner@leics.gov.uk

ARCs, Added Years and APCs should be stated separately from each other and standard contributions on the monthly contributions return. This is because they do not attract a contribution from the employer.  AVCs are not required on the monthly contributions return as these are paid to Prudential not the Pension Fund.

Contracts that were available to members prior to 2008

Contributions due on existing contracts will continue, but there will be no new contracts:

• Added Years
• Additional Regular Contributions (ARCs)

Should the member be paying additional contributions either to purchase extra years or in relation to an 'old' election covered by the Transitional Provisions, but not AVCs and that member has a period of absence on reduced pay or without pay then, unless the absence is on sick leave, his extra contributions are payable regardless of whether or not standard contributions are payable. His extra contributions must be calculated on the pay he would have received if he had not been absent. So, although a woman on half pay maternity leave pays standard contributions based on half pay any additional contributions she pays must be based on full pay. 

A member who is absent on sick leave pays additional contributions on the same pay as that used to work out his standard contributions. So, if a member is on sick leave without pay there will be no additional contributions payable but he will be treated as if they had been paid in full. 

These contracts are not affected by entering the 50/50 scheme.  

ARC contracts are flat sums payable per pay period and not percentages of pensionable pay.
The purchases of Added Years are expressed as a percentage of pensionable pay.  

Please ensure that the 2008 definition of pensionable pay is used here, and non-contractual overtime is excluded.

Contracts that are currently available:

• Additional Pension Contributions (APCs)

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:

(a)  To buy extra pension. The employee may choose to make a one off contribution or regular additional contributions in order to buy a set amount of additional pension. The cost (a cash amount NOT a percentage of pay) is determined by the employee’s age and the amount they wish to purchase. Note that an employee cannot commence an APC in this circumstance if they are in the 50/50 scheme. 

(b)  To buy lost pension for unpaid leave of absence. Where an employee elects to pay an APC to purchase any or all of the lost amount of pension within 30 days of returning to work the employer shall pay 2/3rds of the cost of the APC (a shared cost APC). Note that an employee can commence a shared cost APC in this circumstance even if they are in the 50/50 scheme. 

A member should print, complete and return this form to the Pension Section if they wish to make an enquiry:

Should the member elect to purchase an APC, the Pension Section will advise the relevant payroll office of the terms of the repayment that have been agreed.

• AVCs - Additional Voluntary Contributions, paid to the In house AVC provider which is Prudential:

AVCs can be paid by the employee. Contributions will be either a cash amount or a percentage of pensionable pay. Prudential will notify employers each month if there are any new starters or amendments to make to that month’s payroll. The employer will in turn notify the payroll of the change to be made.

Whilst the legislation allows a member to pay up to 100% of their pensionable pay into an AVC each month, the level of pay after other deductions will need to support the chosen level of contribution.

Payments deducted in respect of an AVC should be paid to the AVC provider by the 8th of the month following i.e. contributions deducted for June should be paid by 8 July. This is because members may be retiring and awaiting payment of their benefits, the timing of which can sometimes depend on when the final AVC contribution is received by Prudential.

Contributions should be paid by BACs to Prudential and a monthly spreadsheet e-mailed to Prudential. If you have any queries on submitting your AVC contributions or schedule please contact Prudential at avc.admin@prudential.co.uk.

Should a member increase, decrease or terminate their additional contributions deductions, the Prudential or the Pension Section will notify you in writing.

Guidance for employers when a member changes their employment and they pay an AVC:

If a member leaves an employer and re-starts with another, the member must take steps to re-commence their AVC anew. However:

If a member moves employment within an employer, the AVC should continue unaffected if the following conditions apply:

The switch of post is continuous. This covers promotions and re-grades and changing jobs within the employer e.g. schools. Job A would need to finish with Job B starting immediately afterwards (i.e. the next day or after a weekend)

(NB If that member then wants to reduce their AVC, they can do so by contacting Prudential)

The exception being where a member has only changed their employer due to a TUPE transfer or Academy Conversion, the AVC should continue.

The scheme also needs to remain the same i.e. LGPS. For example a member changing from LGPS to Teachers Pension Scheme would not be covered by this advice, the AVC should cease in this instance and the member would need to actively take out a Teachers AVC with Prudential.

This guidance is not intended to undermine previous decisions, and is intended to be followed from this point forwards, following this issue coming to light summer 2015

An important note to consider, as some members may be paying additional death cover to the Prudential. As this cover is on a monthly basis, cover is lost should the payments lapse. if a member goes onto a no-pay situation please check whether they are paying for such cover, as if no deductions are able to be made the life cover will cease. If this occurs contact the Pensions Section for advice.

ARCs, Added Years, APCs and AVCs should be stated separately from each other and standard contributions on the annual return.

ARCs, Added Years and APCs should be stated separately from each other and standard contributions on the monthly contributions return.  This is because they do not attract a contribution from the employer.  AVCs are not required on the monthly contributions return as these are paid to Prudential not the Pension Fund.

In accordance with the regulations pension contributions on KIT days are payable based on the pay received.
If a KIT day is taken then it is deemed to be pensionable at the appropriate contribution rate normally paid by the member had the maternity leave not have taken place.

If the scheme member does have any KIT days in an unpaid period of additional maternity leave, these will need to be discounted when calculating the overall amount of pay lost which would be used in the calculation of an APC being paid to replace a period of nil pay taken following child related leave.

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.

There are 2 ways – depending on when the member joined the LGPS.

Joined LGPS before 1 April 2014

The amount payable by the member is 16% of the lost pensionable pay.  Please ensure that the 2008 definition of pensionable pay is used here, and non-contractual overtime is excluded.

Employers will need to ensure that details of breaks in membership due to industrial action are kept indefinitely, as these could be requested by the Pension Section when calculating retirement benefits.

Joined the LGPS after 1 April 2014

The amount of lost pension shall be calculated as 1/49th of the APP during the period of strike if they were in the main section during that period, or 1/98th of the APP for the period of strike if they were in the 50/50 section during that period.  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.

Employers are requested to canvass members at the close of a dispute to see who wishes to repay their strike break.  This information should then be passed to the Pension Section, who will make the calculations and advise the member and their payroll office of the repayment terms.

Please make sure that your spreadsheet include the member's national insurance number, the amount of pay that has been 'lost', the member's payroll number and confirmation of whether they are in the main scheme or the 50/50 scheme.