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EPN529 - Increase in the Pensions Earnings Cap for 2018/19

Audience

  • HR managers
  • Payroll managers

Summary

  • This EPN contains information about the increase to the Pensions Earning Cap for 2018/19. 

Action

  • To note the increase in the Pensions Earning Cap. 
  • To ensure that your systems and processes are updated accordingly.

Timing

  • Effective from 6 April 2018

Detail 

Background   

1. Before 6 April 2006, HM Revenue & Customs (HMRC) limited the amount of salary that could be used to calculate the pensionable pay of a member who joined the Civil Service pension arrangements on or after 1 June 1989. The limit is called the “earnings cap” or “permitted maximum”.

2. 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 that HMRC previously used.

Earnings Cap level for 2018-19

3. From 6 April 2018 to 5 April 2019, the earnings cap will be £160,800.

Whom does the earnings cap apply to?

4. Members of nuvos and alpha are not subject to the earnings cap (although ‘linked’ benefits calculated on a final salary basis are generally capped, unless they were transferred on an uncapped basis under Club transfer provisions).

5. 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 you can find in EPN 238.

Employer and Employee contributions

6. If a member’s pensionable earnings are subject to the earnings cap, their contributions must only be calculated on their salary below the cap. The same applies to employer contributions known as Accruing Superannuation Liability Charges (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.

7. For employee contributions from 1 April 2015 to 31 March 2019 (see EPN 403 and the 2015 Member contribution examples). The employee contribution rate is set after the pensionable earnings cap is applied (where applicable).

Treatment or part-time pay

8. The cap applies proportionately if a member works part time.

9. For example, if a member earns £97,200 a year for a 3 day week. The full-time equivalent salary is £162,000, which is clearly above the cap for full-time pay. The pro-rata cap is £160,800 x 3 ÷ 5 = £96,480.

10. Accruing Superannuation Liability Charges (ASLC) bands are determined by full-time equivalent salary, which means that the ASLC banding will relate to the cap of £160,800. However, member contribution banding is determined by part-time salary, which means that member contribution banding will relate to the pro-rata figure. The annual pensionable earnings figure for the purpose of setting the member contribution rate in the above example is £96,480. Once the bandings are determined, ASLCs and member contributions are levied against the pro-rata figure of £96,480.

11. This document replaces EPN 485.

Contacts

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

You can find electronic copies of the Employers’ Pension Guide, all current EPNs and forms on our website www.civilservicepensionscheme.org.uk under ‘Employers’.

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 at:

http://www.civilservicepensionscheme.org.uk/

·        This EPN contains information about the increase to the Pensions Earning Cap for 2018/19.