EPN565 - Increase in the 2019/20 Pensions Earnings Cap

Audience 

This notification will be of particular interest to:   

  • HR managers who deal with high earners; and
  • Payroll managers

Actions

  • To note the contents of this EPN; and
  • Update your systems and processes accordingly.

 Timing

  • Effective from 06 April 2019

Detail

Background

1. Before 06 April 2006, HM Revenue & Customs (HMRC) limited the amount of salary used in calculating the pensionable pay of a member who joined the Civil Service pension arrangements on or after 01 June 1989. This limit was called the “earnings cap” or “permitted maximum”.

2. Although HMRC no longer requires us to limit benefits to the earnings cap, the rules of classic, classic plus and premium continue to restrict benefits in this way. We calculate the earnings cap using the same method previously used by HMRC.

Earnings Cap level for 2019-20

3. From 06 April 2019 to 05 April 2020, the earnings cap will be £166,200.

To whom does the earnings cap apply?

4. Members of nuvos and alpha are not subject to the earnings cap. However, any “linked” benefits calculated on a final salary basis may be capped unless they were transferred on an uncapped basis under the Club transfer provisions.

5. In the classic, classic plus and premium scheme, the earnings cap applies to all civil servants who joined, or returned to, the Civil Service on or after 01 June 1989. However, there are exceptions to this rule, which can be found in EPN238.

Employer and employee contributions

6. Where a member’s pensionable earnings are subject to the earnings cap, their contributions must only be calculated on their salary below the cap. The same applies to employer contributions (ASLCs). You should advise the member that the earnings cap will apply to them. If a member joins partway through a year, or their salary rises above the cap during a financial year, you must apply it based on the monthly salary.

7. For employee contributions made after 01 April 2015, the employee contribution rate is set after the pensionable earnings cap has been applied (where applicable). See EPN403 and 2015 for member contribution examples.

Treatment or part-time pay

8. The cap applies proportionately where a member works part time.

9. For example, a member earns £99,800 a year for a 3-day week. The full-time equivalent salary is £166,333, which is above the cap for full-time pay. The pro-rata cap is £166,200 x 3 ÷ 5 = £99,720.

10. ASLC bands are determined by full-time equivalent salary, which means that the ASLC banding will relate to the cap of £166,200. On the other hand, member contribution banding is determined by part-time salary, which means that member contribution banding will relate to the pro-rata figure. The annualised pensionable earnings figure for the purpose of setting the member contribution rate in the above example will therefore be £99,720. Once the bandings are determined, both ASLCs and member contributions are levied against the pro-rata figure of £99,720.

Reference

This document replaces EPN140, EPN154, EPN206, EPN238, EPN272, EPN294, EPN316, EPN353, EPN376, EPN415, EPN449, EPN485 and EPN529

Contacts

If you have a question about the distribution of EPNs or you need to receive them in a different format contact employerpensionnotice@cabinetoffice.gov.uk

You can find electronic copies of the Employers’ Pension Guide, all current EPNs and forms on our website www.civilservicepensionscheme.org.uk under ‘Employers’. 

This notice is for employers and should not be issued to scheme members. 

If members have a question about their pension they can find information at:

www.civilservicepensionscheme.org.uk

 

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