Audience: HR Managers who deal with high earners & Payroll managers
Action: Note the contents and apply the new limit.
Timing: The change is effective from 6 April 2007
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 should advise the member that the earnings cap will apply to them. It is mentioned in the Starter Pack booklet ‘Your pension, your choice’, but not in any detail as it applies to so few members.
The cap applies proportionately when actual part-time pay is used in calculating, for example, death benefit.
For example, a member earns £90,000 for a 3 day week. The full time equivalent salary is £150,000, which is clearly above the cap for full time pay. The cap applies proportionately to the part time pay and so in this case you should treat the member as if the cap were:
£112,800 x 3 ÷ 5 = £67,680
All pay in excess of this level should be disregarded for member contributions and ASLCs.
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. They are subject to CSPD approval. 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
This document replaces EPN140
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Civil Service Pensions