Pensionable pay and assumed pensionable pay
What's pensionable pay?
Pensionable pay within the LGPS has two definitions based on the regulations in place – the 2008 and 2014 scheme definitions.
The definition of pensionable pay in the 2014 scheme is very similar to the 2008 scheme. See below for the differences.
What is the definition of pensionable pay in the 2014 regulations
An employee’s pensionable pay is the total of:
- All salary, wages, fees and other payments (including overtime and additional hours) paid to the employee
- Any benefit mentioned in the employee’s contract as being pensionable
An employee’s pensionable pay doesn't include:
- Any sum which has not had income tax liability determined on it
- Any travelling, subsistence or other allowance paid as 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 monetary 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) to achieve 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:
-Local government elections
-Elections for the National Assembly for Wales
-Parliamentary elections or European Parliamentary elections.
What is the definition of pensionable pay in the 2008 regulations
An employee’s pensionable pay is the total of:
- All salary, wages, fees and other payments paid to the employee
- Any other payment or benefit mentioned in the employee’s contract as being pensionable
But an employee’s pensionable pay doesn’t include:
- Payments for non-contractual overtime;
- 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 his or her contract of employment
- Any payment as an inducement not to terminate his employment before the payment is made
- The amount of any supplement paid –
-By the environment agency
-To an employee in recognition of the difference in contribution rates between, members of the Principal Civil Service Pension Scheme and the LGPS. These would be members that have transferred on 1 April 2010, under a staff transfer scheme from the Learning and Skills Council for England, to either a local authority or London Council Limited
-Any award of compensation (excluding any sum representing arrears of pay) to achieve equal pay in relation to other employees
What is assumed pensionable pay from April 2014 onward?
Assumed pensionable pay is the pay the employee would have had in cases of reduced contractual pay or nil pay because of sickness or injury; or during relevant child related leave (i.e. ordinary maternity, paternity or adoption leave, and any paid additional maternity, paternity or adoption leave).
When does assumed pensionable pay apply?
Assumed pensionable pay will normally be used where the member has gone on to reduced or no pay. This may be where:
- The member is on leave due to sickness or injury and is on reduced contractual pay or no pay
- The member is on relevant child-related leave (i.e. ordinary maternity, paternity or adoption leave and any paid additional maternity, paternity or adoption leave, but NOT unpaid additional maternity leave)
- The member is absent on reserve forces services leave
- For ill-health tiers 1 & 2 and death in service
For all tier 1 and 2 ill-health retirements and death in service cases, we'd work out the ill-health enhancements and death grants respectively using assumed pensionable pay.
How is assumed pensionable pay worked out?
Assumed pensionable pay considers what a person would have been earning if they'd worked as normal. Assumed pensionable pay should be worked out as an annual rate then applied to the relevant period as a proportion of that rate. Examples of how to work this out (including any employee whose pay periodically is other than monthly (e.g. weekly, fortnightly, lunar, quarterly, half yearly) can be found on the lgpsregs.org website.
Reduction in pay and final salary benefits (Regulation 10)
If a member joins the LGPS before 31 March 2014, they'll have membership in the final salary scheme. Their benefits for pre-April 14 service are based on their final salary when they leave their job. However, if there’s been a reduction to their pensionable pay and they leave or retire within ten years of this change; this could affect their final pay, and the retirement benefits linked to their pre-April 2014 service.
Regulation 10 of the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 gives protection to some scheme members whose pensionable pay has been reduced within ten years prior to their last day of active membership within the pension scheme.
Regulation 10 says:
10.—(1) Subject to paragraph (2), where a member’s pensionable pay in a continuous period of employment is reduced or restricted—
(a) because the member chooses to be employed by the same employer at a lower grade or with less responsibility;
(b) for the purposes of achieving equal pay in relation to other employees of that employer;
(c) as a result of a job evaluation exercise;
(d) because of 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
(e) 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
If a member falls into the above category, they must make sure their benefits are worked out using the best possible pay. To do this they can:
- Choose to have their benefits worked out on the best year’s pay in the last three years.
- Choose to have their benefits based on the best three year average in the last ten years if they received a pay cut. This option is known as a request under regulation 10 of the LGPS regulations 2008. For this regulation to apply, you, as their employer, must've caused their pay to be reduced or restricted while in your employment, and they must ask for this from you no later than one month before they leave the scheme. They’ll need to contact you to make sure the correct final pay details are passed on to us. If the member chooses the average of the last 10 years, it's calculated by dividing three of their total annual pensionable pay in any three consecutive years of the their choice, ending with 31st March, within the period of thirteen years ending with their last day as an active member.
It’s the member's responsibility to ask for Regulation 10 to be used when working out final pay. Members are asked to make sure they keep any paperwork about their pay cut, in case they need to provide details in the future.
