Date posted: 01/04/2007
- HR practitioners who deal with pension issues
- Those who deal with payroll procedures
Action: You must write to staff who were previously excluded from ill health retirement benefits
- In EPN157 we told you that restrictions on members’ access to ill-health retirement provisions were being removed from 1 January 2007, and asked you to write to those affected. This EPN now gives you details of how previously excluded service will be treated and the arrangements you need to make for members wanting their service to count in full, should they subsequently retire on ill health grounds.
- You should already have identified those members affected by this change and instructed your payroll provider to change their contribution rates to standard scheme rates from 1 January 2007. You must now write to these individuals to ask them to consider how they want service from 1 October 2002 up to 31 December 2006 to be treated in the event that they claim benefits early due to ill-health. A model letter is attached at Annex B which includes an options form for them to complete.
- The letter gives previously excluded members the option of either making backdated contributions (in which case any service between 1 October 2002 and 31 December 2006 will count in the event of ill-health retirement in the future) or, alternatively, not making backdated contributions, in which case any ill-health pension will reflect only service for which they have paid full contributions.
- The original instructions for reducing contributions for excluded members, which came into effect on 1 October 2002, were in EPN 38. (You can find a copy of this EPN on our website in the archived EPN section.) This set out that when a member failed to satisfy the health standard you;
- gave classic members a non-pensionable taxable pay supplement equivalent to 1.5% of pensionable earnings
- deducted a reduced rate of 2% instead of 3.5% from premium and classic plus members. (In some cases, because of payroll limitations, you may have followed the same method as classic by continuing to deduct 3.5% and awarding a pay supplement.)
(Note: There was no reduction in contribution for any service before 1 October 2002.)
- For their service to count in full, the member will now have to pay contributions to cover the amount they underpaid between 1 October 2002 and 31 December 2006, plus an amount of interest. The backdated contributions will be eligible for tax relief.
- You must include the amount each individual would have to pay in the letter you send them. To calculate this you will need payroll details for the period concerned so that you can find out either the amount of any non-pensionable pay or the contributions deducted at the lower rate during the period. This will enable you to work out the shortfall. So, if a member contributed 2%, you should divide the total contribution by 2 and multiply the result by 1.5 to give you the amount of the under provision. For example, if the member’s 2% contribution was £500, their additional contribution would be £375 (£500/2 x 1.5). You will then need to add on interest to this amount – instructions of how to calculate that are at Annex A.
The option form
- We have set a deadline of 31 July 2007 for members to complete and return the option form to you. They cannot change their decision after that date. When a member has returned the form you must acknowledge receipt by signing it and returning a photocopy to them for their own records. You must retain the original for your records. The default position – which will apply to any members who do not respond – is Option B, namely that they will not pay backdated contributions and will not get the full benefits should they subsequently retire on ill health grounds.
- For those who decide to pay contributions and complete option A on the form, you must arrange for them to repay the full amount. You can agree to do this by monthly deductions from salary. The backdated contributions must be entered on payroll as a pension contribution. You must also notify your APAC that the member has agreed to pay these contributions. This will make sure that the APAC correctly awards the full amount of any ill-health benefit that may become due in the future.
- We suggest the members’ payments are made over the same duration that they were paying lower contributions. For example, if they paid the reduced contribution for two years they can pay the money by 24 monthly deductions. Members can pay the money over a shorter time if they wish. There may be scope to pay over a longer period of time in exceptional circumstances where there is financial hardship but you should not agree to extend the repayment period by more than an additional 12 months without prior agreement with Civil Service Pensions Division (CSPD). Please contact CSPD by emailing the Employer Helpdesk.
- If the member leaves the PCSPS, including on ill health retirement grounds, before paying back all the money you must recover any outstanding amount through your usual payroll procedures. If, exceptionally this is not possible you should notify your APAC of the amount outstanding so that they can consider whether any alternative means of recovery is possible. If the member has not paid all the arrears they won’t get full benefit.
- If they choose option B, not to pay contributions, then there is no further payroll action for you to take. You must ensure you keep a copy of their decision on your personnel files. You must also notify your APAC that there is a period of service for which benefit will not be paid. The model letter includes some examples of how this will work.
- Once the deadline of 31 July 2007 has passed you must send your APAC a full list of anyone to whom the exclusion applied. This should include those who have not made any option as they will be treated as if they had signed option B. A note that they have not made an option should be kept on your files. For the avoidance of any doubt or confusion, you should also write to the member confirming their choice.
This document refers to/replaces EPN38 EPN157
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