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EPN294 - Increase in the Pensions Earnings Cap 2011-2012

Audience: This Notice will be of particular interest to: 

  • HR Managers who deal with high earners 
  • Payroll Managers

Action: Note the contents

Timing: Effective from 6 April 2011

Background

Before 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 joined the Civil Service pension arrangements on or after 1 June 1989. This limit was referred to as the “earnings cap” or “permitted maximum”.

Although HMRC no longer require us to limit benefits to the earnings cap, the rules of classic, classic plus and premium continue to restrict benefits in this way. We calculate the earnings cap using the same method as was previously used by HMRC,

Earnings Cap level for 2011-12

6 April 2011 – 5 April 2012 £129,600 

Who does the earnings cap apply to?

Members of nuvos are not subject to the earnings cap (although any “linked” benefits calculated on a final salary basis are generally capped unless they were transferred on an uncapped basis under the club transfer provision).

For classic, classic plus and premium, the earnings cap applies to all civil servants who joined, or returned to, the Civil Service on or after 1 June 1989; however, there are exceptions to this rule which can be found in EPN238.

Employer and Employee contributions

Where a member’s pensionable pay is subject to the earnings cap, their contributions must only be calculated on their salary below the cap. The same applies to employer contributions (ASLCs). You should advise the member that the earnings cap will apply to them. If a member joins partway through a year, or their salary rises above the cap during a financial year you must apply it based on the monthly salary.

Special cases

The cap applies proportionately when actual part-time pay is used in calculating, for example, death benefit.

For example, a member earns £90,000 a year for a 3 day week. The full time equivalent salary is £150,000, which is clearly above the cap for full time pay. The cap applies proportionately to the part time pay and so in this case you should treat the member as if the cap were:

£129,600 x 3 ÷ 5 = £77,760

All pay in excess of this level should be disregarded for member contributions and ASLCs. 

Reference

This document replaces EPN140, EPN154, EPN206, EPN238 and EPN272

Contacts

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

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