Date posted: 06/08/2002
Calculation of member contributions and ASLCs under the classic plus and premium schemes and employer/employee contributions under the partnership pension account.
This Notice gives guidance on:
- calculation of contributions where employees are receiving reduced pay or no pay;
- the payment of ASLCs in respect of members with more than 40 years’ service;
- the use of sick pay at pension rate;
- the payment of contributions for industrial staff whose pensionable earnings (apart from basic pay) must not exceed one-third of basic pay; and
- the payment of contributions for those whose pensionable earnings exceed the permitted maximum (the earnings cap).
It supplements the advice provided earlier about the payroll implications of the new schemes.
Employers’ payroll change managers are asked to note the implications for payroll and to commission any work from their payroll provider to ensure that contributions are deducted correctly from 1 October 2002.
Payroll changes must be delivered to enable the new Civil Service pension arrangements to operate from 1 October 2002.
- EPN1 gave guidance about the basis of member contributions for the classic plus and premium schemes. EPN8 gave guidance about the calculation of employer and employee contributions to the partnership pension account. Employees will not have to make any contributions to the partnership pension account, but if they choose to do so, their employer must match the percentage level of their contributions up to 3% of pensionable earnings. In all cases, the employer will make a contribution to the account based on the employee’s age. There will also be an employer contribution (a “mini-ASLC”) of 0.8% of pay (for risk benefits) to Civil Superannuation.
- Under the classic plus and premium schemes, member contributions and employer contributions (accruing superannuation liability charges or ASLCs) will be payable on all earnings which are paid to the member which are pensionable. In addition, contributions will be payable on non-cash benefits which have been granted on a pensionable basis. The same applies to employer and employee contributions payable under the partnership pension account.
Contributions for those who are unpaid or on reduced rates of pay
- In certain circumstances, employees may receive a reduced rate of pay or no pay, but their pensionable earnings will remain at the rate that would have applied if those circumstances had not happened. In these circumstances, the rate of pensionable earnings is known as “assumed pay”.
- Assumed pay is used in the following circumstances:
- sick leave on reduced pay (but not if the individual is receiving “sick pay at pension rate” in which case the service does not count as pensionable. See also paragraphs 11 and 12 below);
- ordinary maternity leave on no pay, statutory maternity pay or reduced contractual pay (and paternity and adoption leave under new legislative provisions to be introduced from April 2003);
- service in the Reserve Forces which is pensionable under Civil Service pension arrangements;
- where pay is abated on re-employment after early retirement (in lieu of the abatement of an annual compensation payment);
- a secondment to another employer outside the Civil Service where the individual continues to be covered by Civil Service pension arrangements in respect of their service even though they are paid by the other employer;
- unpaid leave which the Cabinet Office has exceptionally agreed can count as pensionable (approval must be obtained from CSP in all cases).
Classic plus and premium
- As at present (ie under classic), in the above circumstances member contributions will be payable under classic plus and premium on pensionable earnings (ie on assumed pay) either at the time or on the member’s return to work, except in the case of ordinary maternity leave and sick leave. In the latter circumstances, contributions will be payable on the pensionable elements of any pay actually received.
- As under classic, ASLCs will be payable on pensionable earnings (assumed pay) in all circumstances.
Partnership pension account
- Under partnership, employee contributions will follow a slightly different principle from that applied under classic, classic plus and premium. In the circumstances above, the percentage contribution chosen by the employee will be applied to the pensionable elements of any pay actually received.
- If the employee is unpaid but is treated as receiving assumed pay, they cannot contribute through the payroll by deductions from salary. However, they will be given the opportunity to continue contributions – probably by direct debit – and we are talking to the pension providers about how evidence of this might be provided to the employer so that matching contributions can continue.
- Under partnership, the employer will continue to pay age-related contributions based on the employee’s pensionable earnings (assumed pay). If the employee has continued to make contributions, the employer will also match the gross cash amount of the employee’s contribution up to a maximum of 3% of pensionable earnings (assumed pay). The employer will continue to pay the mini-ASLC to Civil Superannuation based on the employee’s pensionable earnings (assumed pay).
Payment of ASLCs under classic plus and premium for members with more than 40 years’ service
- EPN1 advised that members will stop paying contributions once they have built up 40 years’ service in classic plus or premium. However, and as now, ASLCs are payable on all service. ASLCs will not cease after 40 years’ service.
Sick pay at pension rate
- Employers have authority to determine their own sick pay arrangements. Where it is unclear whether an employee is going to return to work or be retired early on the grounds of ill-health, some employers pay the employee a rate of pay equal to the pension that would be payable if they were retired early. This period does not count as reckonable service and no member contributions or ASLCs are therefore payable. This applies to the PCSPS at present, and the situation will continue under classic, classic plus and premium in the future. However, for members of classic plus and premium, employers may wish to consider in conjunction with BMI whether the upper tier or lower tier of benefits is likely to be appropriate.
- Under partnership, a lump sum rather than a pension is payable on ill-health retirement, so the rationale for paying sick pay at pension rate is debatable. However, if an employer chooses to pay sick pay at pension rate to an employee who has a partnership pension account (possibly because they want all employees to be covered by the same sick pay arrangements), they will need to ask the APAC to calculate an ill-health pension as if the individual has been a member of the premium scheme. No age-related or matching employer contribution will be payable to the partnership pension account during a period of sick pay at pension rate although the employee may continue to contribute via payroll if they wish. No mini-ASLC will be payable to Civil Superannuation.
Contributions for industrial staff
- As at present (ie under classic), pensionable earnings (apart from basic pay) under classic plus, premium and partnership for industrial staff must not exceed one-third of basic pay. Contributions under all the pension arrangements will be payable on pensionable earnings as limited for the pay period concerned eg for monthly paid staff, contributions will be payable on pensionable earnings up to a limit of the month’s basic pay plus one-third. Therefore, under partnership, the employer’s age-related contribution and mini-ASLC, and any employee contribution/employer matching contribution will be based on this limited figure.
Contributions for those whose pensionable earnings exceed the permitted maximum (the earnings cap).
- As at present (ie under classic), pensionable earnings under classic plus, premium and partnership must not exceed the earnings cap (£97,200 in tax year 2002-3). For employees whose pensionable earnings exceed the cap, monthly contributions under these pension arrangements will be payable on one twelfth of the earnings cap applying at the time. Therefore, under partnership, the employer’s age-related contribution and mini-ASLC, and any employee contribution/employer matching contribution will be based on this limited figure.
- Where, exceptionally, the person has been admitted to the supplementary pension schemes (which for classic, classic plus and premium provide benefits on a non-tax relieved basis on pay above the earnings cap), employee and employer contributions are payable on that element of pay. As now, employee contributions should be collected on a non-tax relieved basis. ASLCs, with the addition that applies where benefits are being provided on pay above the cap, should be paid to Civil Superannuation in the normal way. Different arrangements apply under partnership, and all cases should be referred to Civil Service Pensions.
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