A Scheme Employers Guide to Pre & Post 2014 Pensionable Pay under the Local Government Pension Scheme Regulations

Transcription

1 Looking forward to your retirement A Scheme Employers Guide to Pre & Post 2014 Pensionable Pay under the Local Government Pension Scheme Regulations For Local Government Pension Scheme employers Please note that external links within this document are not updated by Peninsula Pensions and are provided for reference purposes only. Practitioners should ensure that they are referring to up-to-date information within any external links. Peninsula Pensions is provided by Devon County Council and is a shared service with Somerset County Council February 2018

2 Contents 1. What does Pensionable Pay mean?. 2 Pensionable Pay definition 3 Meaning of pensionable pay comparison table 5 Pensionable elements comparison table Final Salary Pensionable Pay (Pre 2014 benefits) 7 Example calculation for a full-time employee. 7 Example calculation for a part-time employee. 8 Example calculation for a casual employee 9 Term-time members Reductions in Final Salary Pensionable Pay. 14 Best of the last three years.. 14 Certificate of protection of pension benefits (pre 2008). 14 Notification of protection of pensionable pay (post 2008) Enhancements and final salary pay Honoraria and final salary pay Arrears of final salary pensionable pay Fees and final salary pay Absences Career Average Revalued Earnings (CARE) Pensionable Pay.. 21 Leaver with post 2014 membership only.. 22 Leaver with pre & post 2014 membership Assumed Pensionable Pay Cumulative Pensionable Pay Arrears of CARE Pensionable Pay Separate Contracts CARE Accounts. 26 Pre & Post 2014 Pensionable Pay (February 2018) Page 2

3 1. What does pensionable pay mean? Pensionable pay means the pay that an employee pays pension contributions on. Current actual pensionable pay means the current rate of pay that they pay contributions on, but for calculating pre 1 st April 2014 pension figures, we need to know their final year s pensionable pay as at a particular date. For post 1 st April 2014 pension figures, we need to know the actual pensionable pay for the relevant tax year to the date of leaving. Calculation of accurate pensionable pay is essential in the correct payment of benefits to LGPS members when they retire, or in working out the level of deferred benefits that they retain in the scheme when they leave employment for some other reason. It is NOT the responsibility of the Peninsula Pensions to determine what elements of an employees pay should be pensionable. It is the responsibility of the employer. Pensionable Pay Definition Definition of Pensionable Pay in the 2014 Scheme is basically the same as the 2008 Scheme in as much as all earnings in respect of the job are pensionable apart from those listed in the regulations as exclusions (See LGA guide for full exclusion list). There are, however, three main differences. The first significant change is that noncontractual overtime has been removed from the exclusions list and so, from 1st April 2014, non-contractual overtime becomes pensionable. This can have major financial implications for employers and Directors of Finance / budget holders will need to factor this additional cost into budgets. The second change is that a payment in consideration of loss of future pensionable payments or benefits is, from 1st April 2014, not pensionable. So, for example, where an employer changes an employee s contract to remove contractual overtime and gives a lump sum payment in consideration for the loss of future pensionable payments (because the number of voluntary hours of overtime are expected to be less than the former number of contractual hours of overtime), that lump sum would be non-pensionable. Similarly, where an employer reduces the pay of an employee but offers a marked time payment (e.g. to bring the employee s pay up to the former rate of pay for a limited period of time) the employer could, by defining that top-up sum in the marked-time agreement as a sum to be paid each pay period for a period of X months in consideration of the loss of future pensionable payments make the top-up payment non-pensionable. The third change is that, from 1st April 2014, any actual pay paid by the Scheme employer to a reservist during Reserve Forces Service Leave is not pensionable. Note that whilst on reserve forces service leave the employee and the Ministry of Defence pay contributions on the amount of Assumed Pensionable Pay (see APP Guidance on our website) Pre & Post 2014 Pensionable Pay (February 2018) Page 3

4 Post 2014 Definition of Pensionable Pay (CARE) (1) Subject to regulation 21 (assumed pensionable pay), an employee's pensionable pay is the total of- (a) all the salary, wages, fees and other payments paid to the employee, and (b) any benefit specified in the employee's contract of employment as being a pensionable emolument. (2) But an employee's pensionable pay does not include- (a) any sum which has not had income tax liability determined on it; (b) any travelling, subsistence or other allowance paid in respect of expenses incurred in relation to the employment; (c) any payment in consideration of loss of holidays; (d) any payment in lieu of notice to terminate a contract of employment; (e) any payment as an inducement not to terminate employment before the payment is made; (f) 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; (g) any payment in consideration of loss of future pensionable payments or benefits; (h) any award of compensation (excluding any sum representing arrears of pay) for the purpose of achieving equal pay in relation to other employees; (i) any payment made by the Scheme employer to a member on reserve forces service leave; (j) 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. The 2013 regulations not only provide a full definition of Pensionable Pay but also introduced the concept of cumulative pensionable pay and assumed pensionable pay; so in theory you could say that there are now three definitions; Career Average Revalued Earnings (CARE) Pensionable Pay, Assumed Pensionable pay and Cumulative Pensionable Pay. On the following pages we have provided two comparison tables which illustrates the difference in the 2008 and 2014 pensionable pay definitions and which elements of a members salary is deemed as pensionable under each definition. Pre & Post 2014 Pensionable Pay (February 2018) Page 4

5 Meaning of Pensionable Pay Comparison Table (1) An employee's pensionable pay is the total of- (a) all the salary, wages, fees and other payments paid to him for his own use in respect of his employment; and (b) any other payment or benefit specified in his contract of employment as being a pensionable emolument. (2) But an employee's pensionable pay does not include- (a) payments for non-contractual overtime; (b) any travelling, subsistence or other allowance paid in respect of expenses incurred in relation to the employment; (c) any payment in consideration of loss of holidays; (d) any payment in lieu of notice to terminate his contract of employment; (e) any payment as an inducement not to terminate his employment before the payment is made. (f) the amount of any supplement paid- (i) by the Environment Agency; or (ii) to an employee whose employment is transferred on 1st April 2010, under a staff transfer scheme, from the Learning and Skills Council for England to a local authority or to London Councils Limited, in recognition of the difference in contribution rates between members of the principal civil service pension scheme and the Scheme; or (1) Subject to regulation 21 (assumed pensionable pay), an employee's pensionable pay is the total of- (a) all the salary, wages, fees and other payments paid to the employee, and (b) any benefit specified in the employee's contract of employment as being a pensionable emolument. (2) But an employee's pensionable pay does not include- (a) any sum which has not had income tax liability determined on it; (b) any travelling, subsistence or other allowance paid in respect of expenses incurred in relation to the employment; (c) any payment in consideration of loss of holidays; (d) any payment in lieu of notice to terminate a contract of employment; (e) any payment as an inducement not to terminate employment before the payment is made; (f) 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; (g) any award of compensation (excluding any sum representing arrears of pay) for the purposes of achieving equal pay in relation to other employees. (3) No sum may be taken into account in calculating pensionable pay unless income tax liability has been determined on it. (4) In this regulation "local authority" has the same meaning as in regulation 16A. (g) any payment in consideration of loss of future pensionable payments or benefits; (h) any award of compensation (excluding any sum representing arrears of pay) for the purpose of achieving equal pay in relation to other employees; (i) any payment made by the Scheme employer to a member on reserve forces service leave; (j) returning officer, or acting returning officer fees other than fees paid Pre & Post 2014 Pensionable Pay (February 2018) Page 5

6 Pensionable or Not? Pay Pensionable Pre 2014 Pensionable Post 2014 Basic Salary Yes Yes Performance related pay Yes if contractual Yes Cash equivalent of a lease car No No Contractual overtime Yes Yes Non-contractual overtime No Yes Travelling expenses No No First aid allowance* Yes if contractual Yes if contractual Enhancement for weekend working Yes if contractual Yes Enhancement for working nights Yes if contractual Yes Sleep ins Yes if contractual Yes Subsistence or allowance paid in respect of No No expenses incurred Payment for loss of holidays No No Payment in lieu of notice to terminate contract of No No employment Any award of compensation (excluding any sum No No representing arrears of pay) for the purposes of achieving equal pay in relation to other employees. Bonus Yes if contractual Yes Honoraria payment Yes if in lieu of Yes duties No - if instead of overtime Acting up pay Yes Yes Salary Sacrifice Yes unless for a car Yes unless for a car CPD (Continual Professional Development) Yes Yes *First Aid Allowance is pensionable if it is a requirement of the employee s contract that they be First Aid qualified. If it s voluntary, then it is not deemed as pensionable. As a general rule of thumb, pay is pensionable unless specifically listed within the exclusions. A pensionable emolument is a bonus or allowance which counts when deducting pension contributions. It is NOT the responsibility of the Peninsula Pensions to determine what elements of an employees pay should be pensionable. It is the responsibility of the employer. Pre & Post 2014 Pensionable Pay (February 2018) Page 6

7 2. Final Salary Pensionable Pay for calculation of Pre 2014 pension benefits (2008 Scheme) The Local Government Pension Scheme prior to 2014 was a final salary related defined benefit pension scheme and pre 1 st April 2014 scheme benefits are based on the employee s service and their full-time equivalent pensionable pay. Final pensionable pay is usually the full-time equivalent pay over the last 365 days of employment (NOT their actual last rate of pay). However, it may prove that a previous years pensionable pay is more beneficial. Unlike the pensionable pay for post 1 st April 2014 benefits, this calculation is done based on their leaving/retirement date, not financial years. For example if the leaving date is 30 th November 2015 the pay would be calculated over the period 1 December 2014 to 30 November If you are using a previous year then you should always calculate it to the anniversary of the date of leaving, 1 December 2013 to 30 November 2014 for example. Example for a full-time employee (works all year round, normally 37 hours per week) If the pay rates are as follows: 01/04/2014 to 31/03/2015 = /04/2015 to 30/11/2015 = You need to calculate the period 01/12/2014 to 31/03/2015 at the rate of and the period 01/04/2015 to 30/11/2015 at the rate of /12/2014 to 31/03/2015 gives a number of days of 121 days 01/04/2015 to 30/11/2015 gives a number of days of 244 days 365 days* (*should always add up to 365 unless worked less than a full year) 01/12/2014 to 31/03/2015 is 121 / 365 x = /04/2015 to 30/11/2015 is 244 / 365 x = Final salary pensionable pay The pensionable pay you calculate will always fall between the first and last salaries. These are the figures that need to be put in Section A LGPS 2008 Information of the Leavers Form Please note: You will need to split the remuneration figures for any changes in pay Pre & Post 2014 Pensionable Pay (February 2018) Page 7

8 Part-time employees Scheme regulations define a whole-time employee as: an employee whose contract of employment provides (a) that he is such an employee for the Scheme, or (b) that his contractual hours are not less than the number of contractual hours for a person employed in that employment on a whole-time basis. Part-time members accrue membership as an appropriate fraction of the duration of membership they have. In other words their membership is pro-portioned down by the hours they work to reflect that they are not employed on a whole-time basis. Whilst the membership is affected, their benefits are calculated using a full-time equivalent pensionable pay instead of their actual pay (what they would earn if they were working on a whole-time basis). Working examples Example A - Employee works part-time weekly hours over 52 weeks To calculate the final pay for a part-time employee working 25 hours per week would be relatively simple, using the actual pay received in the final year and multiplying by 25/30. Pensionable Salary Rates over last 365 days: 01/12/2014 to 31/03/2015 = /04/2015 to 31/03/2015 = /12/2014 to 31/03/2015 gives a number of days of 121 days 01/04/2015 to 30/11/2015 gives a number of days of 244 days 365 days 1) Work out the actual pensionable pay for the relevant period: 01/12/2014 to 31/03/2015 is 121 / 365 x = /04/2015 to 30/11/2015 is 244 / 365 x = Actual part-time pensionable pay for last 365 days = ) Convert the hours to a percentage: Actual weekly hours = Whole-time equivalent weekly hours = Divide the actual hours by the whole-time equivalent hours: x100 = % This provides the percentage of hours worked per week which needs to be stated in the Current Hours section of the Leavers form Pre & Post 2014 Pensionable Pay (February 2018) Page 8

9 Use the percentage of hours to up-rate the part-time pensionable pay to the full-time equivalent pensionable pay: Part-time pensionable pay divided by the weekly hour s percentage Example: Actual Pay Full-time Equivalent (FTE) % = % = Total Pensionable Pay for last 365 Days = These are the figures that need to be stated in Section A LGPS 2008 Information of the Leavers Form. Please note: You will need to split the remuneration figures for any changes in hours or pay so please uprate the part-time pay according to the hours for each period Example B - Employee works part-time with only hourly rate provided (Casual Employee s) Sometimes you will be provided with an hourly rate. If this is the case you will need to calculate the whole time annual salary. This is done by taking the total pay for the period and calculating the hours based on how many weeks worked. For example if the pay rates are as follows 01/12/2014 to 31/03/2015 = 9.56 per hour over 17 ½ weeks 01/04/2015 to 30/11/2015 = per hour over 35 ½ weeks 1) To calculate the average weekly hours: = hours = 4.18 / x 100 = % weeks = hours = 1.64 / x 100 = % weeks This provides the percentage of hours worked per week which needs to be stated in the Current Hours section of the Leavers form 2) Use the percentage of hours to up-rate the part-time pensionable pay to the fulltime equivalent pensionable pay: Part-time pensionable pay divided by the weekly hour s percentage Actual Pay Full-time Equivalent (FTE) % = % = Total Pensionable Pay for last 365 Days = These are the figures that need to be stated in Section A LGPS 2008 Information of the Leavers Form. Please note: You will need to split the remuneration figures for any changes in hours or pay so please uprate the part-time pay according to the hours for each period Pre & Post 2014 Pensionable Pay (February 2018) Page 9

10 Term-time members** The original intention of the new look LGPS was that membership and final pay calculations for term-time employees should be pro-rated. As stated previously, an employee working part-time would have their service adjusted to take account of the part-time hours, thereby allowing the use of the whole-time equivalent pay in the calculation of the pensionable pay. Part-timers service is recorded as 18.50/37.00 for example. To keep uniformity with part-timers, a term-time employee also has their service adjusted; the whole-time equivalent pay is then used in the calculation of the pensionable pay. An employee working 37 hours per week for 44 weeks per year would have their membership recorded as 31.22/37.00 or % (i.e. 37/37 x 44/ x 100) If the employee s actual pay was 20,000.00, the final pay for this term-time employee would be grossed-up for benefit calculations i.e % = Please note that any adjustment that was made for the employee not working the full year should be ignored, as they pensionable is based on periods of a year not academic years so any period of 365 is a year. It may be useful to remember that an employee cannot earn more or less than a year s pay in a year. For example, if you pay 18,000 per year and the employee works from 1/9/15 31/8/16, then they would earn 18,000. If they worked from 1/1/16 31/12/17, they have still worked a full year and so would still earn a year s salary for pension purposes. Part-time, term-time members** Similarly, a part-time, term-time employee would have the service membership adjusted for the part-time and the term-time. A part-time, term-time employee working 20 hours per week for 44 weeks per year would have their membership recorded as 16.88/37.00 or % (i.e. 20/37 x 44/ x 100) If the employee s actual pay was 10,810.81, the final pay for this term-time employee would be grossed-up for benefit calculations i.e % = **Important There is a difference in the information needed depending on whether the employee is in Devon Fund or Somerset Fund and the following pages explain the different calculations required for part-time term-time employees** Pre & Post 2014 Pensionable Pay (February 2018) Page 10

11 Somerset Fund Employees Historically, service for term-time employees within the Somerset Fund has not been adjusted and hours have been recorded as the hours they work. The full-time equivalent pensionable pay is then reduced to take account of the number of weeks worked per year. Please provide: The hours they work per week as a percentage The full-time equivalent pensionable pay reduced to take account of the number of weeks worked per year. For example: Actual basic annual salary (adjusted to take into account the number of weeks worked each year), plus any additional pensionable recurring pay,) multiplied by the basic hours worked (37), divided by actual hours worked each week. Adjusted pay = 10,000 x = FTE Pensionable Pay Devon Fund Employees: Term-time employees have their hours adjusted to equate to a full year and the full-time equivalent pay is worked out by uprating the actual pay by the adjusted hours Divide the actual hours by the whole-time equivalent hours for the week then multiply by the week s factor: x x 100 = % (percentage of hours to be stated in the Current Hours section of the Leavers form) Use the percentage of hours to up-rate part-time pensionable pay to the full-time equivalent pensionable pay. Working Examples Example A - DCC Fund Employee works part-time using a week s factor (term-time only) These are employees who are paid based on the number of weeks they have worked, plus an enhancement; Meal Time Assistant s (MTA), Cleaners etc. For example; an MTA would work 6.25 hours per week for 38 weeks, but with the enhanced pay it works out to 6.25 for 43.5 weeks. So using the working example below you would report the hours as 6.25/37.00 x 43.50/ x 100 = %. Pensionable Salary Rates over last 365 days: 01/12/2014 to 31/03/2015 = /04/2015 to 31/03/2015 = /12/2014 to 31/03/2015 gives a number of days of 121 days 01/04/2015 to 30/11/2015 gives a number of days of 244 days 365 days 1) Work out the pensionable pay for the relevant period: 01/12/2014 to 31/03/2015 is 121 / 365 x = /04/2015 to 30/11/2015 is 244 / 365 x = Pre & Post 2014 Pensionable Pay (February 2018) Page 11

12 Actual part-time pensionable pay for last 365 days = ) Convert the hours to a percentage: Actual weekly hours = Full-time equivalent weekly hours = Weeks factor = Divide the actual hours by the whole-time equivalent hours for the week then multiply by the week s factor: x x 100 = % This provides the percentage of hours worked per week which needs to be stated in the Current Hours section of the Leavers form 3) Use the percentage of hours to up-rate the part-time pensionable pay to the fulltime equivalent pensionable pay: Part-time pensionable pay divided by the weekly hour s percentage: Actual Pay Full-time Equivalent (FTE) % = % = Total Pensionable Pay for last 365 Days = These are the figures that need to be stated in Section A LGPS 2008 Information of the Leavers Form. Please note: You will need to split the remuneration figures for any changes in hours or pay so please uprate the part-time pay according to the hours for each period Example B - DCC Fund Employee works part-time using annual hours (term-time) These are employees who work term-time and their salary is based upon the number of hours worked per year; Teaching Assistant s, Learning Support Assistant s (LSA) For example: an LSA worked 20 hours per week for 40 weeks which equates to 800 hours worked per annum (20 x 40 = 800) with the full-time equivalent hours per annum of So using the working example below you would report the hours as 800 / 1700 x 100 = %. Pensionable Salary Rates over last 365 days: 01/12/2014 to 31/03/2015 = /04/2015 to 31/03/2015 = /12/2014 to 31/03/2015 gives a number of days of 121 days 01/04/2015 to 30/11/2015 gives a number of days of 244 days 365 days 1) Work out the pensionable pay for the relevant period: 01/12/2014 to 31/03/2015 is 121 / 365 x = /04/2015 to 30/11/2015 is 244 / 365 x = Actual part-time pensionable pay for last 365 days = Pre & Post 2014 Pensionable Pay (February 2018) Page 12

13 2) Convert the hours to a percentage: Actual annual hours = 1465 Whole-time equivalent annual hours = 1700 or 1663 etc. Divide the actual hours by the whole-time equivalent hours: x 100 = % This provides the percentage of hours worked per week which needs to be stated in the Current Hours section of the Leavers form 3) Use the percentage of hours to up-rate the part-time pensionable pay to the fulltime equivalent pensionable pay: Part-time pensionable pay divided by the weekly hour s percentage Actual Pay Full-time Equivalent (FTE) % = % = Total Pensionable Pay for last 365 Days = These are the figures that need to be stated in Section A LGPS 2008 Information of the Leavers Form. Please note: You will need to split the remuneration figures for any changes in hours or pay so please uprate the part-time pay according to the hours for each period. Pre & Post 2014 Pensionable Pay (February 2018) Page 13

14 3. Reductions in Pensionable Pay The 2008 scheme was a final salary scheme and as such a salary link must be maintained for pensionable pay purposes for members with pre- 1 April 2014 membership or who may be subject to the underpin (The underpin is a protection for members who meet certain criteria to ensure they get the highest of the benefits between 2008 and 2014 scheme paid). It is important to appreciate that all pensions built up before 1 April 2014 are protected. Those people who are currently a contributing scheme member will get their pre-1 April 2014 pension (and automatic lump sum, if has pre 2008 benefits) based on their final pay at leaving or eventual retirement, calculated under the 2008 Scheme definition of final pay and pensionable pay. It should be noted that regulations 8 and 10 of the LGPS (Benefits, Membership and Contributions) Regulations 2007 continue to apply regardless of whether a reduction or restriction in pay occurs before, on or after 1 April This protection is referred to as maintaining the final salary link. This means that when a member leaves or retires, if they have membership prior to 1 April 2014, that portion of their benefits would be calculated separately. The upshot of this is that, for such active members, as well as calculating the career average pensionable pay (CARE) post-1 April 2014, the employer will need to be able to calculate the final salary pensionable pay pre-01 April 2014 under the old definition too. Best of the last 3 Years In the majority of cases, final pay is the total pay due, and on which contributions were paid or were deemed to be paid, in the last 365 days of employment. For part-time members, the pay used is the whole-time equivalent pay not the actual pay received. Where either of the immediately preceding two years would yield a higher figure, then that figure is used (hence the old adage best of the last 3 years ). For someone leaving on 13 th August 2015 for example, you would need to look at 14 th August 2013 to 13 th August 2014 and 14 th August 2012 to 13 th August 2013 to see if either were higher than the final years pay. Reduction/Restriction in pay before 1 April 2008 Certificate of protection of pension benefits If a members pay was reduced or restricted for reasons beyond their control before 1 April 2008 they could request a certificate of protection of pension benefits. An employer must issue a certificate where requested within 12 months of the reduction/restriction. If a member does not ask within 12 months an employer does not have to provide a certificate but can choose to do so. A certificate can be issued if before 1 April 2008, otherwise than by virtue of a member s own circumstances- His / her rate of pay is reduced; or Pre & Post 2014 Pensionable Pay (February 2018) Page 14

15 Because the rate at which the member s rate of pay may be increased is restricted in such a way that it is likely that the rate of the member s retirement pension will be adversely affected. A certificate CAN NOT be issued where the member- Takes a voluntary or temporary reduction in pay; or Is returning to their normal post after a temporary promotion; or Is simply reducing their working hours or weeks, and the whole time equivalent remains constant. If a member has been issued with a certificate of protection of pension benefits and they leave the LGPS within 10 years of the reduction or restriction in pay, their benefits will be based upon the greater of- any one of the best year's pay in the last five years prior to leaving; or the best consecutive three year average in the last thirteen years ending with a day of which the last day is the anniversary. The regulations actually provide for the member to elect which pay figure is to be used in the calculation of their benefits. In practice it is expected that employers would choose whichever pay figure will produce the highest amount (allowing for the effects of pensions increase). It is therefore most important for employers to note that when certificates of protection are issued, there is a need to keep records of pay for far longer than required for HMRC purposes. The certificate provides members with limited protection of benefits for up to 10 years from the date of reduction or restriction. It is also transferable across employments and funds, where membership is aggregated. Although this option is no longer in the current scheme regulations, a member can still use a certificate of protection of pension benefits if it is still valid. Reduction/Restriction in pay on or after 1 April 2008 Notification of protection of pensionable pay (Benefit Regulation Ten) Significant changes were made to the Scheme with effect from 1 April Certificates of Protection were not carried forward from the 1997 regulations. The new provision covers voluntary reduction cases as well as compulsory reduction cases, which means that the employer will pick up the cost where the Scheme member s pay is reduced within 10 years prior to leaving through their own choice. Also, no new certificates can be issued in respect of drops/restrictions in pay occurring after 31 March Pre & Post 2014 Pensionable Pay (February 2018) Page 15

16 Although the requirement to request/issue certificates has been removed, employers are now required to issue a Notification of Protection of Pensionable Pay for any relevant reduction/restriction that occurs on or after 1 April Notifications must be issued where a member s pensionable pay in a continuous period of employment is reduced or restricted- because the member chooses to be employed by the same employer at a lower grade or with less responsibility; for the purposes of achieving equal pay in relation to other employees of that employer; as a result of a job evaluation exercise; because a change in the member s contract of employment resulting in the cessation or restriction of, or reduction in, payments or benefits specified in the member s contract of employment as being pensionable emoluments; or because the rate at which the member s rate of pay may be increased is restricted in such a way that it is likely that the rate of the member s retirement pension will be adversely affected. The above DO NOT apply where the reduction/restriction- immediately follows a period in which the member occupies a post on a temporary basis at a higher rate of pay; is because the member chooses to reduce his or her hours of work or be employed at a lower grade for the purposes of regulation 18 (flexible retirement); or is because the member is simply reducing their working hours or weeks. Protection means that retirement benefits can be based upon either- any one of the last 3 years ending with the day they ceased to be a member; or an average of any three consecutive years ending 31 March within the last thirteen ending with the day membership ceased. Protection IS NOT transferable unless TUPE applies. If at the point of reduction/restriction a member changes job and is issued with a new contract of employment, the employer is required to complete a leavers form and a starters form in addition to the appropriate certificate/notification of protection of pay. If a new contract is not issued e.g. the member remains in the same post but is downgraded or loses a pensionable allowance, the employer should complete a certificate/notification of protection of pay. Pre & Post 2014 Pensionable Pay (February 2018) Page 16

17 What is the effective date of the reduction/restriction? The date of the contractual change which is usually the day the members pay goes down. If pay is restricted, the effective date is still the date of the contractual change. The entitlement to the protection is as a result of a permanent change to their substantive post. If a Certificate of Protection of Pension Benefits had been issued under the 1997 regulations and the certificate has not lapsed, then the calculation of final pay is improved from the best of the last 3 years to the greater of The best of the last 5 years The best average of any 3 consecutive years in the last 13 years All years ending on the anniversary of the date of leaving From 1 April 2008, any member having a pay cut or restriction in respect of prescribed circumstances has the right for 10 years to choose the best average of any consecutive three years in the last 13 years of membership. For simplicity, these 13 years all end on 31 March rather than anniversaries of the date of leaving. To assist employers with this onerous task, a Best Average spreadsheet is available on our website to calculate 13 years of final salary pensionable pay. Please note that the employee has to contact Peninsula Pensions in writing at least a month before they leave to initiate the above protection. We do have a pensionable pay leaflet on our website which you can pass to any affected employees to help explain the protection and process. Right continues to apply even where the pay cut or restriction occurs after 31 March Employers will therefore, have to provide all the details at the date of cessation of active membership. Then, for active members details will be required at every 31 March for the Annual Benefit Statements and the Annual Allowance calculations. It is not possible for Peninsula Pensions to derive a final pay figure from contributions paid by the member. Where there is a gap in membership in the final year (e.g. due to a break in employment or some unpaid leave for which the member has not paid contributions), then the pay is mathematically grossed up to a full year. Where an absence was due to illness or injury, any reduction or loss of pay is disregarded. Pre & Post 2014 Pensionable Pay (February 2018) Page 17

18 4. Enhancements If the employee is paid enhancements for night or weekend duty the total payments for the enhancements due in the final pay period must be added to the whole-time equivalent pay calculated for the final pay period. If the employee is part-time then the actual enhancements should be increased to a whole-time amount as normal in final pay calculations. 5. Honoraria If an employee is paid an honorarium and contributions have been deducted from it in the final year period the honorarium must be apportioned if necessary. For example: Employee leaves on 6 th July 2008 and received an honorarium of 1,200 on which contributions were paid in September 2007 for additional work during the period 1 September 2006 to 31 August The final year s pay would need to be increased. The full amount of the honorarium would not be included in the final pay calculation as the payment is for only part of the period relevant to the calculation: 7 July 2007 to 31 August final pay figure of 12, would need to be increased by: 1 month + 25/31 x 100 (1/12th of 1,200) = However, because the majority of the period in respect of the honorarium falls outside of the period used to calculate the final pay, it is possible that the preceding year might be the best. The year in question would be 7 July 2006 to 6 July Annual Salary from 1 April 2006 = 11, Annual Salary from 1 April 2007 = 12, The final year s pay calculated as follows: 07/07/2006 to 31/03/2007 = 11, x 8(mths) + 25/31(days) = 8, /04/2007 to 06/07/2007 = 12, x 3(mths) + 6/31(days) = 3, Total Final Year s Pay = 12, This figure is less than 12, (12, ) but the honorarium has to be included for the period 1 September 2006 to 6 July 2007 calculated as follows: 10 months + 6/31 x 100 = 1, Therefore the best final years pay is 13, ( 12, ,019.35) Pre & Post 2014 Pensionable Pay (February 2018) Page 18

19 6. Arrears of Final Salary Pensionable Pay If an employee is paid an item of pay in arrears, for example, additional payment for weekend work or a standby allowance, care has to be taken so that only the payments relative to the period of the final year s pay are included. For example; an employee left on 6 th July They were paid an additional payment of 50 per month in arrears for being called out when required. During the final year they were called out in June, September, and October in 2007, January, February and April in The final year s pay would be increased by 250 only as the payment made in respect of June 2007 would have been paid in July but would be ignored because it relates to a period outside of the final year (7 th July 2007 to 6 th July 2008). 7. Fees Where pensionable pay consists of or includes fees, the average of the last 3 years fees are used when calculating final pay or, at the employer s discretion, the average of any 3 consecutive years ending on a 31 st March in the last 10 years. When a person s total period of membership is less than 3 years, the average is to be done by that lesser period. As by definition these elements of pay can fluctuate so to protect the Pension Fund, an average is taken rather than allocating the payments to a single year. The ability for the employer to consent to using a different averaging period is given to them simply to ensure fair play where these elements of pay have varied dramatically over the years. 8. Absences Maternity/Paternity/Adoption Leave Whole-time equivalent pay of any period of ordinary maternity leave (OML), ordinary paternity leave (OPL) or ordinary adoption leave (OAL) and any period of paid additional maternity leave (AML), paid shared parental leave (SPL) or paid additional adoption leave (AAL) will count in the calculation of final pay for pre 1 st April 2014 benefits; if that period of leave falls in the final pay period/the last 365 days. If the member wishes the period of unpaid AML, SPL or AAL to count in the final pay calculation, they would have to enter into an Additional Pension Contract (APC) or Shared Cost Additional Pension Contract (SCAPC) to cover the lost pension for the whole period of unpaid leave of absence. Where APC s are paid, the period of absence has been bought for the purposes of the final pay calculation in respect of the pre 1 st April 2014 benefits. The same holds true for other types of unpaid absence. Therefore, whether a member had decided to cover the lost pay during the break or not is crucial to the calculation of final pay. For more guidance on APC s and absences, please see our website. Pre & Post 2014 Pensionable Pay (February 2018) Page 19

20 Illness or Injury Where absence is due to illness or injury, any reduction or loss of pay is disregarded so the final pay is calculated as if the reduction or loss had not occurred (what pay would they have received had they not been absent). Gaps or Part-years If a member is entitled to count only a part year for final pay, the final pay is the pay received in that part year grossed up to 365 days. This means that if a member goes on authorised unpaid leave of absence for 2 days during the last year of membership and doesn t pay APC s, it is the pay received in the last year x that is used. Pre & Post 2014 Pensionable Pay (February 2018) Page 20

21 9. Pensionable Pay for calculation of Post 2014 pension benefits (2014 Scheme) Career Average Revalued Earnings (CARE) Scheme Career average revalued earnings pensionable pay (CARE Pay) is the amount of pay on which a member has paid pension contributions, in other words their actual pay. From 1 April 2014 it includes their normal salary or wages plus any shift allowance, bonuses, overtime (both contractual and non-contractual), maternity pay, paternity pay, adoption pay and any other taxable benefit specified in their contract as being pensionable. CARE pay does not include any payment that is made in consideration of loss of future pensionable payments or benefits. The actual calculation of the career average pensionable pay is the same as for the final salary pensionable pay, but it is specific to a scheme year. A scheme year runs from 1 April to 31 March. For example: If the employee s pay rates are as follows: 01/04/2014 = /04/2015 = The career average pensionable pay would be for 01/04/2014 to 31/03/2015 and for 01/04/2015 to 31/03/2016. You will notice that the figures are exactly the same because the scheme year is 1 April to 31 March. Where for pre 2014 calculations of pensionable pay are completed using 365 days, for post 2014 career average pensionable pay calculations can be completed using months rather than days due to returns and contributions being completed on a monthly basis. From April 2014, pensionable pay is now applicable to when it was paid, not to the period of work it relates to. If a member receives an extra payment for arrears of pay, for example, the payment should be notified against the month it is paid rather than the period it relates to. We do ask that employers provide Peninsula Pensions with details of the CARE pay on a monthly basis so that your employees who use the Member Self Service facility will be able to see the most up to date details. An interface template is available for data exchange from payroll systems to the Pensions database and if this is something you would be interested in using, please contact our Employer Liaison Officer, Emma Davies for more information. There is some guidance for employers regarding submitting CARE pay on our website. Pre & Post 2014 Pensionable Pay (February 2018) Page 21

22 Leaver with post 1/4/2014 membership only If an employee ceased membership of the scheme on 30/11/2015, you will need to notify us of the actual pensionable pay for 1 st April last to the date of leaving. For example: Post 2014 Career Average Pensionable Pay 01/12/2014 to 30/11/ /04/2014 to 31/03/2015 = (previous year s CARE pay) 01/04/2015 to 30/06/2015 = 3/12 x = /07/2015 to 30/11/2015 = 5/12 x = Total Pensionable Pay = These are the figures that need to be put in Section B LGPS 2014 Information of the Leavers Form. You are no longer required to uprate pensionable pay to full-time equivalent You will need to include any payment after leaving (confirm additional amount and date of payment) You will need to include any Assumed Pensionable Pay (APP) You will need to exclude any pay that relates to pre April You will need to split amounts for 50/50 Scheme if applicable. Leaver with pre & post 1/4/2014 membership Employers will need to hold 2 different pensionable pay figures for employees with pre & post 2014 membership: Actual Pensionable Pay for CARE Pension (April to March/DOL) (2014 pensionable pay definition) PLUS Pensionable Pay for full 365 days prior to date of leaving (for final salary link) (2008 pensionable pay definition) For the final salary link pensionable pay, you will still need to confirm any payments after leaving and ensure that the best year s pensionable pay is provided in accordance with the Best of last 3 years and Reduction in Pay Protections. For example: An employee ceased membership of the scheme on 30/11/2015 with pre & post 2014 membership. Employee s pay rates: 01/07/2012 = /04/2013 = /07/2013 = /04/2014 = Pre & Post 2014 Pensionable Pay (February 2018) Page 22

23 01/07/2014 = /04/2015 = and the member had non-contractual overtime payments of the following: February March June October November An employer would be required to provide Peninsula Pensions with the following pay calculations: 1. Pre 2014 pensionable pay calculations for last three years 01/12/2012 to 30/11/ Post 2014 career average pensionable pay for period 01/12/2014 to 30/11/2015 a. 01/04/2014 to 31/03/2015 b. 01/04/2015 to 30/11/ Pre 2014 Pensionable Pay 01/12/2012 to 30/11/ /12/2012 to 31/03/2013 is 121/365 x = /04/2013 to 30/06/2013 is 91/365 x = /07/2013 to 30/11/2013 is 153/365 x = = /12/2013 to 30/11/ /12/2013 to 31/03/2014 is 121/365 x = /04/2014 to 30/06/2014 is 91/365 x = /07/2014 to 30/11/2014 is 153/365 x = = /12/2014 to 30/11/ /12/2014 to 30/11/2015 is = These are the figures that need to be put in Section A LGPS 2008 Information of the Leavers Form 2. Post 2014 Career Average Pensionable Pay 01/12/2014 to 30/11/2015 a. 01/04/2014 to 31/03/2015 = = b. 01/04/2015 to 30/06/2015 = 3/12 x = /07/2015 to 30/11/2015 = 5/12 x = = These are the figures that need to be put in Section B LGPS 2014 Information of the Leavers Form Pre & Post 2014 Pensionable Pay (February 2018) Page 23

24 10. Assumed Pensionable Pay (APP) Assumed pensionable pay (APP) replaces the concept of notional or as was pay in cases of reduced contractual pay or no pay as a result of sickness or injury; or during relevant child related leave (i.e.; ordinary maternity, paternity or adoption leave, paid shared parental leave and any paid additional maternity or adoption leave); or whilst on reserve forces service leave. In these circumstances, the amount added to the cumulative pensionable pay should be the assumed pensionable pay and not the actual pensionable pay received (if any). The calculation Assumed pensionable pay is calculated as an annual rate then applied to the relevant period of that rate. The relevant period starts on the date the employee drops to reduced contractual pay or no pay due to sickness or injury, or when relevant child related leave or reserve forces service leave commences. It should be noted that the relevant period does not include the unpaid additional maternity, paternity or adoption leave or unpaid shared parental leave available at the end of relevant child related leave. This is treated as unpaid leave of absence and no assumed pensionable pay accrues during that period. Example: APP is calculated at an annual rate based on the pensionable pay received in the 3 complete months (or 12 weeks if weekly paid) before the start of the applicable period: For example: Month 1 = 1400 Month 2 = 1500 (inc 100 overtime) Month 3 = 1400 Annual rate of APP = ( ) / 3 x 12) = The annual figure is then apportioned to the applicable period and replaces any pay received. Ignore any lump sum payments made in the previous 3 months as already included in the pensionable pay but regular lump sum payments can be included at employer s discretion. The APP calculations need to be done each month (for annual pensionable pay) For more information on APP, please refer to the APP Guidance on our website and the APP Section within the LGA HR Guide to the LGPS 2014 Scheme. Pre & Post 2014 Pensionable Pay (February 2018) Page 24

25 11. Cumulative Pensionable Pay Cumulative pensionable pay is the total of the career average pensionable pay and/or the assumed pensionable pay in either section (main or 50/50) of the Scheme in the scheme year. Cumulative pensionable pay must be provided separately for each section as different accrual rates will apply when calculating the pension in each section. If the employee moves between sections more than once in a Scheme year there is no requirement to differentiate between different periods in the sections. The cumulative amounts should contain all of the career average pensionable pay and/or assumed pensionable pay in each section during the year. For example: A member is on a salary of 24,000 throughout the entire scheme year and moves to the 50/50 section after 3 months; at which point they have already earned 6,000. They spend 5 months in the 50/50 section whilst they earn 10,000 before moving back into the main section earning another 8,000. Their cumulatives at the end of the Scheme year are 14,000 in the main section and 10,000 in the 50/50 Section. Any assumed pensionable pay is included if the member has been on reduced or nil pay due to sickness or injury on reduced contractual pay or no pay, or relevant child related leave (for example, maternity, paternity or adoption leave) or reserve forces service leave. It is not to be used where the member has been on unpaid leave. 12. Arrears of CARE pensionable pay In the old scheme, benefits were based on the pensionable pay due for a period, not pensionable pay received in that period. This is necessary in a final salary scheme to prevent distortions in the calculation of final pay when benefits are eventually calculated. Benefits in the 2014 scheme are calculated based on the pensionable pay that is received in the Scheme year* and not the pay due for the 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. Old scheme = based on period it relates to not when it s paid New Scheme = based on when it s paid not period it relates to Any pay received after 31/03/2014 which relates to period before 01/04/2014 should not be included in LGPS2014 cumulatives it should be allocated back to when it was due *Remember a scheme year is from 1 April to 31 March, because the pension is calculated and added to the pension pot each scheme year. Pre & Post 2014 Pensionable Pay (February 2018) Page 25