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EPN403 - Change to Employee Contributions from 1 April 2015

Audience:

This notice will be of interest to:

  • HR Managers and
  • Payroll Managers

Action:

To note specification regarding employee contributions and to alert payrolls about the upcoming changes.

Timing: 

Immediate – changes must be implemented to take effect from April 2015.

  1. With the introduction of the new Civil Service pension scheme alpha from 1 April 2015, the way employee contribution rates are assessed is changing.
  2. The revised employee contribution rate methodology will apply to all members, including those who are covered by transitional protection (full or tapered) and will remain in the PCSPS after 1 April 2015.  Please note that the same rates will generally apply to all pension scheme members regardless of whether they are in classic, classic plus, premium or alpha – apart from a group of lower paid classic and former classic members. 
  3. Setting contribution rates.
    The contribution rates for each year from 1 April 2015 to 31 March 2019 are set out in Annex A. The employee contribution rate payable for a pay period is based on the “annualised” pensionable earnings actually paid to the employee in that pay period. This means that:

    -   If the member is paid monthly then the pensionable earnings paid in the month are multiplied by 12 to get the annualised amount;

    -   If a member is paid other than in monthly instalments then the amount paid in the pay period is divided by the relevant number of days in that period and then multiplied by 365.
  4. An employee’s contribution rate in a pay period is therefore based on which band their annualised pensionable earnings falls in.
  5. What about part-timers? 
    For part-time staff, actual part-time pensionable earnings is used rather than the full-time equivalent.
  6. What if a member receives a late pay award?
    If there is a late pay award or there are arrears of pay for any other reason (whether or not those arrears relate to a previous scheme year) then the banding will relate to the annualised amount of pensionable earnings actually paid in the relevant pay period (even if the back pay causes the band to shift for just that pay period). Contributions are paid on, and annualised figures based on, all elements of pay which are pensionable (that is, basic pay and all pensionable allowances and bonuses).
  7. What contribution rates are used for the various sections of the schemes?
    All members will pay the same contribution rates irrespective of which scheme they are in – with one exception. Members of classic, and members of alpha who were members of classic immediately before 1 April 2015, whose annualised pensionable earnings paid in a pay period fall in the lowest band, will pay a different rate to other members in their band for that pay period.
  8. What if a member is paying for an EPA (Effective Pension Age)?
    The new approach of members paying contributions based on pensionable earnings when they are paid rather than when they are due will also apply if they are paying for an EPA or enhanced EPA option under the alpha scheme – irrespective of the period to which the earnings are allocated for the purposes of the pension account.  For example, if a member starts up an EPA and then has a late pay award which relates to the previous scheme year when they did not have an EPA, they will be charged the relevant EPA contribution on all of their pensionable earnings paid in the relevant pay period, not just the element that will be allocated to the EPA for that scheme year.
  9. What if a member is receiving “assumed pay”?
    As in the PCSPS, “assumed pay” will count towards pension in alpha in certain circumstances where a member receives no pensionable earnings or a reduced level of pensionable earnings. In these circumstances, the assumed pay in a pay period is an amount equal to the annualised pensionable earnings that the member would have received in a pay period if those circumstances had not applied.  When a member is still receiving some pay, member contributions remain payable on the actual pay they receive.  However, other than in the circumstances set out in paragraph 10 below, the band which determines the member contribution rate (and the employer contributions) will be based on the assumed pay figure.
  10. For the purposes of assessing the band which determines the contribution rate:

    -   when someone is on sick leave on reduced pay, it is the actual reduced pay which is used (including any statutory sick pay they receive);
    -   when someone is on adoption leave, maternity leave, parental leave, paternity leave or additional paternity leave, or is receiving statutory pay, it is the contractual remuneration or statutory pay actually paid which is used.
  11. What information do we need to send Cabinet Office about our monthly contributions?
    The Monthly Pension Contributions form has been revised to take account of the new pension arrangements – a copy of the revised form is attached at Annex B (please note that the new form should only be used from April 2015).
  12. Are there any other anomalies in respect of classic members?
    For members of classic, the new employee contribution rates set out in Annex A incorporate the contributions members pay towards survivors’ benefits – generally referred to as WPS contributions (in most cases this is 1.5%, but where the individual has opted to pay additional WPS contributions, those additional contributions are not incorporated into the new employee contributions rates).  The WPS contributions and that part of the new contributions that are in excess of WPS should continue to be separately identified.  As is the case at the moment, the interface with MyCSP should include the WPS contributions separately from the contributions in excess of WPS. For classic members (only) it is therefore likely to be the case that payslips should continue to show ‘standard’ and ‘extra’ contributions separately.
  13. For classic members who currently receive pensionable allowances for which they are not required to pay WPS contributions, they will nevertheless be required to pay the excess employee contribution on all their pensionable earnings (i.e. the same as all other members).

Contact

If you have a question about the distribution of EPNs or you need to receive them in a different format contact employerpensionnotice@cabinet-office.gsi.gov.uk.

You can find electronic copies of the Employer Pension Guide, all current EPNs and forms on our website.

This notice is for employers and should not be issued to scheme members.

If members have a question about their pension they can find information on this website or by contacting your Pension Service Centre.