Audience: HR Managers who deal with high earners & Payroll managers
Timing: The change is effective from 6 April 2006
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.
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.
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.
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.
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.
This document replaces EPN121
Enquiries about content, distribution or to receive in a different format
Civil Service Pensions