EPN596 - Employee and employer contribution rates for 2020/21

Audience

  • HR managers
  • Payroll managers

Actions

  • To work with your payroll provider to ensure that changes to employee salary thresholds can be applied from 01 April 2020. This EPN follows on from EPN 590.
  • To ensure your payroll provider can implement a change to the method used to determine which salary threshold a member falls within based on their pensionable earnings from 01 September 2020.
  • To note there are no changes to employer contribution rates or bands from 01 April 2020, so the rates from 01 April 2019 stay in force.
  • HR Managers may wish to consider the date of the change to the treatment of back-dated pensionable earnings when deciding on the payment date of any delayed Pay Awards in 2020

Timing

  • Immediate

Detail

Changes to salary thresholds

1. As outlined in EPN 590, the Cabinet Office held a consultation with member representatives on employee contribution rates. The outcome of the consultation is to continue 2019/20 member contribution rates from 01 April 2020, and 2019/20 salary thresholds will increase slightly.

Table 1 - Employee pension contributions rates from 01 April 2020

Annualised rate of pensionable earnings (£)

Member contribution rate

From

To

£0

£22,600

4.60%

£22,601

£54,900

5.45%

£54,901

£150,000

7.35%

£150,001

-

8.05%

Changes to calculation of pensionable earnings definition for pension contributions

2. There are also changes to the calculation of pensionable earnings definition when a member has backdated payments, for determining pension contribution tier.

3. Currently, backdated pay is added to regular monthly salary to determine which contribution band, a member falls within. The contribution rates applied are determined each month, based on a pro-rata of the annual threshold.

4. For payments made after 01 September 2020, backdated pay should not be included when determining contribution tiers. This will be achieved by basing the pensionable earnings used to determine the contribution tier only on actual basic pay and any pensionable allowances. For avoidance of doubt, part-time workers will continue to have their salary threshold worked out using their actual pay, and not their full-time equivalent salary. Note, backdated pay includes (but is not limited to) pay awards, allowances, etc.

5. This contribution rate should be applied against all pensionable earnings paid in the period. For example, both salary, and any backdated pay.

Worked Example (based on 2020/21 salary thresholds)

6. A member who has an annual salary of £54,300 receives a pay rise in September 2020 of £500 P/A.

7. The pay increase of £500 is equal to £41.67 per month. The pay increase is not received by the member until their November 2020 pay. In November, the member receives their new monthly salary and the backdated pay increase i.e. £4,566.67 + £83.33 (new monthly salary plus 2 months backdated pay award).

Current system

New system

Annualise total pensionable earnings, including backdated pay in that   month: (£4,566.67 + £83.33) x 12 = £55,800

Annualise total pensionable earnings, excluding backdated pay in that   month: £4,566.67 x 12 = £54,800.04

£55,800 income means a pension contribution rate of 7.35%

£54,800.04 income means a pension contribution rate of 5.45%

For November’s pensionable earnings the member’s contribution will be   7.35% of (£4,566.67 + £83.33) i.e. £341.78

For November’s pensionable earnings the member’s contribution will be   5.45% of (£4,566.67 + £83.33) i.e. £253.43

Legislative amendments to the Scheme Rules to affect this policy will be laid on 04 March 2020.

9. There is no need for amendment to existing employer contribution rates or bands. We have reconfirmed the amounts below.

Table 2 - Employer pension contributions rates from 01 April 2020

Annualised rate of pensionable earnings (£)

Employer contribution rate

From

To

£0

£23,000

26.6%

£23,001

£45,500

27.1%

£45,501

£77,000

27.9%

£77,001

-

30.3%

Pre Fresh Start Prison Officers

 

34.1%

Mini-ASLC (Death in Service Cover for   Partnership members)

 

0.5%

Contacts

For more information, contact Emily Clifton from the Civil Service Pensions Team emily.clifton@cabinetoffice.gov.uk

You can find electronic copies of the Employer Pension Guide, all current EPNs and forms in the Employer section of the Civil Service Pensions website.

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

Members can find information about their pension by visiting the member's section.

Feedback