Date posted: 01/04/2006
- Principal Civil Service Pension Scheme (PCSPS)
- Civil Service Compensation Scheme (CSCS)
- Civil Service Additional Voluntary Contributions Scheme (CSAVCS)
- Partnership Pension Account Death Benefit Scheme (PPADBS)
- Partnership Pension Account Ill Health Scheme (PPAIHS)
Audience: HR Managers who deal with pension issues
- To note the scheme changes
- To note that your APAC will not be able to carry out revisions to pension awards until at least late May
- To issue the enclosed Office Notice – inserting your APAC contact details where indicated
Timing: The office notice should be issued as soon as possible
- Amendments to the PCSPS, CSCS, CSAVCS, PPADBS and PPAIHS have been laid before Parliament and came into effect from 6 April 2006. Detailed guidance has been issued to APACs but the main issues for you are outlined below. Tax simplification
- The background to tax simplification and the main changes being made to the provisions of the scheme were outlined in EPN133 and the two office notices which you were asked to issue to all staff. The amendments to scheme rules reflect those changes. High earners
- The tax changes are likely to have most impact on employees who are high earners. In relation to high earners you need to be aware of the following:
- We are keeping the “earnings cap” which limits pensionable earnings for those who joined the scheme on or after 1 June 1989. For tax year 2006-7, the earnings cap is £108,600 (full-time equivalent rate for part-time staff).
- We are closing the Supplementary Scheme to new entrants. If you have senior staff in the Supplementary Scheme they will carry on building up tax non-approved benefits.
- If you are recruiting at a senior level (salary over the earnings cap) and need to offer an improved pension package to secure a particular candidate, you may wish to put a business case to the head of Civil Service Pensions Division for the earnings cap to be disapplied. We will expect the reward package offered to reflect the additional pension cost to the employer.
- If you are recruiting at a senior level you may also find that, in some circumstances, candidates will already have significant pension provision and wish to negotiate a higher salary in lieu of participating in the pension scheme. You should refer these cases to the Civil Service Pensions Division.
- We will continue to maintain the “pensions and tax” group and the associated webpages www civilservice-pensions.gov.uk/lta. Please make sure that your senior staff are aware of this and that you have at least one person in the HR area who has at least some knowledge of the tax issues for high earners.
- Where individuals have pension benefits which take them over the lifetime allowance, the process of putting their pension into payment is bound to take a little longer than now. Your APAC may need to seek additional information and may also have to talk the member through the different options available to them. Where retirements are planned, please give as much notice as possible to your administrator.
- If you are aware of anyone who has a significant increase in pension benefits – for instance, as a result of a big promotion (salary increase of, say, £30k or more) and/or a one-off increase in service (for instance, a senior member of staff returning from secondment to an EU institution), it would be sensible to check that the individual is not going to breach the annual allowance and get a large tax bill. Raise any such cases with the employer helpdesk in the first instance.
- Please remember to alert new starters on salaries over £100,000pa to the existence of the pensions and tax group and encourage them to register. Details are on our website (see above). Compensation scheme benefits
- There are some technical changes to the arrangements for classic members over age 50 who leave on Compulsory Early Retirement (CER) and Flexible Early Retirement (FER). Under the new tax rules, we cannot pay a tax-free lump sum early to members without also bringing their pension into payment early. However, those with significant pension benefits will need to bear in mind that enhanced pension benefits may also imply higher Lifetime Allowance charge tax. classic members will therefore have a choice between
Option A - taking an enhanced early pension and tax-free lump sum (calculated in the same way as the annual compensation payment and early tax-free lump sum payable to those who left before 6 April 2006), and
Option B - receiving the additional early exit benefits solely in the form of compensation (in the same way that premium, classic plus or partnership members leaving on CER or FER do).
Employers will remain responsible for meeting the costs of early departures and will pay the costs appropriate to the option the member chooses. The repackaging and commutation options will no longer be available.
- Any member who leaves the scheme on or after 6 April 2006 with at least 3 months reckonable service but without a preserved pension will have a legal right to a transfer value of the rights they have built up or a refund of their contributions (less any tax due). This is over and above the rights they have in the scheme rules. The new legal requirements specify time limits in which certain actions must be taken. To ensure that your APAC can comply with the time limits it is important that you notify them promptly about members of staff who cease employment.
Civil Service Additional Voluntary Contribution Scheme (CSAVCS)
- Members can now transfer their CSAVCS benefits out of the AVC scheme whilst they remain in the Civil Service as long as it is to a UK registered scheme or to a Qualifying Recognised Overseas Pension Scheme. Please note that members cannot transfer their CSAVCS benefits into the main Civil Service schemes (classic, premium, classic plus).
Revisions to awards
- How pension schemes deal with revisions to pensions in payment following a benefit crystallisation event (BCE – this is where a member takes pension benefits on or after 6 April) has only recently been resolved between schemes and HMRC. The resolution involves a number of complexities around testing the revised pension and any lump sum against the member’s lifetime allowance. PenServer – the Civil Service pension scheme’s administration software – is being developed to be able to cope with revisions, but it is unlikely that your APAC will be able to use this until at least the end of May. In the meantime your APAC will not process award revisions manually.
- By and large the largest category of awards requiring revisions will be those where you, as an employer, have agreed a back-dated pay increase for your staff generally. Please note that under these circumstances the effect of any retrospective increase in pay upon a member’s benefits when they left will be paid, but not until at least May when your APAC has the new software available to use (and possibly later if there are many awards needing revision). You may wish to make any members of staff who are both retiring over the next couple of months and likely to benefit from a back-dated pay award aware of this delay.
Information from individuals who are about to retire
- The new tax regime requires a scheme to make checks to determine whether or not any Lifetime Allowance tax is payable when a member retires. Your APAC will be gathering this information via the revised Personal Details Form which staff are asked to complete. You need to be aware that the APAC will not pay the pension until they have a properly-completed form returned to them. It is therefore important that staff complete and return the form promptly.
Pension sharing on divorce
- Where an individual receives a pension credit from a former spouse as part of a divorce settlement, they will no longer be able to ask for their pension to be brought into payment early (ie before age 60) except on grounds of ill-health.
This document refers to EPN 110, 127, 131, 132, 133
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