Any increase to pensionable pay will increase pension benefits earned prior to the date of the change as well as those to be earned in the future. You must get approval from the Scheme Manager, Cabinet Office about changes in the pensionable status of any aspect of pay. Where the effect of a change is to increase final pensionable earnings, you will need to assess and usually pay for the past service cost implications.

Such payments can only be pensionable following the formal exercise of discretion under the Civil Service Pension Scheme (CSPS) rules by the Scheme Manager, Cabinet Office. There may also be a past service cost. You must therefore get approval from the Scheme Manager, Cabinet Office in all cases. Administration and employee understanding are complicated by the Inland Revenue’s imposed need for averaging.

You must consult the Scheme Manager, Cabinet Office but we would normally agree to the payment being pensionable without the complication of it being treated as a "fluctuating emolument".

The normal employer (ASLC) and employee contributions are not designed to recover the costs of one-off increases in pensionable earnings made immediately prior to retirement. Where modest increases are made pensionable for all staff, there is not a problem as this is consistent with the underpinning assumption that pay increases are treated (for pension purposes) in the same way for all staff.

If the employer wishes to give a pensionable increase only to those about to retire, then the Scheme Actuary will need to assess the full past service cost for the staff involved, which you will have to pay. The cost will vary depending on the amount of past service of each employee affected but it would probably be at least 4 times the total amount of the increase in pay.

Please Note: If employers do not pay ASLCs that are due, the cost will ultimately fall on all employers participating in the CSPS. Although the costs in any individual case may appear to be modest in relation to the size of the scheme, the principles underpinning the ASLC mechanism need to be upheld if it is to remain fair to all participating employers.

Published:
14 January 2022
Last updated:
14 January 2022