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EPN140 - Increase in the Pensions Earnings Cap 2006-7

Audience: HR Managers who deal with high earners & Payroll managers

Action:

  • Note the contents and apply the new limit.
  • Note that this information supersedes EPN121. EPN121 instructed you to keep its attached pages as Annex 3B in the Employers’ Pension Guide (EPG). Please destroy these pages on the effective date below.

Timing: The change is effective from 6 April 2006

Background

Prior to 6 April 2006, HM Revenue & Customs (HMRC) limited the amount of salary that could be used in calculating the pensionable pay of a civil servant who, on or after 1 June 1989, joined the Civil Service pension (CSP) arrangements. The limit was referred to as the earnings cap. Although HMRC will no longer limit the benefits we can pay for the new financial year, the rules of the PCSPS will continue to restrict benefits in this way. We will calculate the cap using the same method as was previously used by HMRC.

Earnings Cap level for 2006-7

Who does the earnings cap apply to?

The earnings cap applies to all civil servants who joined, or returned to, the Civil Service on or after 1 June 1989, except those listed below.

  • Members who joined a By-analogy scheme before June 1989 and who transferred to PCSPS from that scheme without a break in service.
  • Members who were staff of NHS Trusts and Health Authorities who joined the Civil Service pension schemes on transfer to the Department of Health (or its equivalent in Scotland and Wales), and were employed by the NHS before June 1989.
  • Members who joined the scheme before June 1989 and went on secondment, or a posting, to an employer and were fully expecting to return to the Civil Service, are not subject to the earning cap provided they return without a break in service.
  • Members who joined the scheme before June 1989 and have returned after taking maternity leave or adoption leave providing they rejoined the Civil Service pension arrangements within one month of returning to work.
  • Members who joined the scheme before June 1989 and who have returned after taking unpaid leave and have rejoined the CSP arrangements within one month or returning to work.
  • Members who joined the scheme before June 1989 and have returned after a break in service of one month or less.
  • When a member joins the CSP arrangements as part of a TUPE transfer you must not apply the cap if they were uncapped immediately before the transfer.
  • When a member brings in a transfer value from another pension scheme the service credit they receive may be uncapped. Your APAC can advise whether a particular transfer value is capped and what implications this has for the member.

Employer and Employee contributions

Where a member is subject to the earnings cap their contributions must only be calculated on their salary below the cap. The same applies to employer contributions.

Special cases

You must apply the cap based on monthly salary when a member joins a Civil Service pension scheme partway through a year or their salary rises above the cap during a financial year.

You must apply the limit for part-time staff to the full-time equivalent rate of pay. However, the cap applies proportionately when actual part-time pay is used in calculating, for example, death benefit.

Flexibilities for topping up the pensions of members that are capped.

Section 3.4 of the Employers’ Pension Guide (EPG) gives details of the pension flexibilities that are available to assist with the recruitment and retention of staff who are members of the CSP arrangements. These flexibilities include those that are designed particularly for new members being recruited on a salary that is over the earnings cap. If you are recruiting someone on a salary in excess of the earnings cap and want to discuss pension options you may wish to offer, please contact the employer helpdesk in the first instance. You may also wish to note that we are planning to issue a new section of the EPG, which will concentrate on pension issues for Senior Appointments. We hope to publish this new section late Spring.

Reference

This document replaces EPN121

Contacts:

Enquiries about content, distribution or to receive in a different format

employerhelpdesk@cabinet-office.x.gsi.gov.uk
01256 846414
Employer Helpdesk
Civil Service Pensions
Grosvenor House
Basing View
Basingstoke
RG21 4HG