Local Government Pension Scheme Training Manual
Pensionable Pay
Pensionable Pay
October 2012
1|P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Pensionable Pay
The Local Government Pension Scheme (Benefits, Membership &
Contributions) Regulations 2007
Calculation of accurate pensionable pay is essential in the correct payment of benefits to
LGPS members when they retire, or in working out the level of deferred benefits that they
retain in the scheme when they leave employment for some other reason. Usually, it is a
member’s last twelve months of service that provide the best pay figure for calculating
benefits but this is not always the case.
Regulation 4 Meaning of Pensionable Pay
(1) An employee's pensionable pay is the total of(a) all the salary, wages, fees and other payments paid to him for his own use in
respect of his employment; and
(b) any other payment or benefit specified in his contract of employment as being
a pensionable emolument.
(2) But an employee's pensionable pay does not include(a) payments for non-contractual overtime;
(b) any travelling, subsistence or other allowance paid in respect of expenses
incurred in relation to the employment;
(c) any payment in consideration of loss of holidays;
(d) any payment in lieu of notice to terminate his contract of employment;
(e) any payment as an inducement not to terminate his employment before the
payment is made.
(f) the amount of any supplement paid(i) by the Environment Agency; or
(ii) to an employee whose employment is transferred on 1st April 2010, under a
staff transfer scheme, from the Learning and Skills Council for England to a
local authority or to London Councils Limited,
in recognition of the difference in contribution rates between members of the principal
civil service pension scheme and the Scheme; or
(g) any award of compensation (excluding any sum representing arrears of pay) for
the purposes of achieving equal pay in relation to other employees.
(3) No sum may be taken into account in calculating pensionable pay unless income tax
liability has been determined on it.
(4) In this regulation "local authority" has the same meaning as in regulation 16A.
October 2012
2|P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Pensionable or not?
When pay is so crucial in the determination of benefits there are logical reasons for
excluding elements of pay from being classed as pay for pension purposes. If payment in
lieu of notice for example, was included as pay and a person was paid 3 months in lieu of
notice, then they would have received a total of 15 months’ pay in the last 365 days of
their employment. Their benefits would be based on a pay figure that was 25% higher in
the final year because of this and yet would have paid contributions over the years on a
much lower figure.
If non-contractual overtime were to be included, members could lose or gain significantly.
An employee working a lot of overtime in their early years but not so closer to retirement
(which is the general trend) would pay significant contributions over the years but reap no
benefit for this on retirement. Conversely, a person could work every hour possible in the
year leading up to retirement (having worked little or no overtime previously) and exploit
the pension fund considerably.
As a general rule of thumb, pay is pensionable unless specifically excluded under
regulation 4 (2) above. A pensionable emolument is a bonus or allowance which counts
when deducting pension contributions.
It is NOT the responsibility of the Pensions Unit to determine what elements of an
employees pay should be pensionable. It is the responsibility of the employer.
Pay
Basic Salary
Performance related pay
Cash equivalent of a lease car
Contractual overtime
Non-contractual overtime
Travelling expenses
First aid allowance
Enhancement for weekend working
Enhancement for working nights
Sleep ins
Subsistence or allowance paid in respect of expenses
incurred
Payment for loss of holidays
Payment in lieu of notice to terminate contract of
employment
Any award of compensation (excluding any sum
representing arrears of pay) for the purposes of
achieving equal pay in relation to other employees.
Detriment payment
Bonus
Honoraria payment
Acting up pay
Market Pay Supplement
Salary Sacrifice
October 2012
Pensionable?
Yes
Yes – if contractual
No
Yes
No
No
Yes
Yes – if contractual
Yes – if contractual
Yes – if contractual
No
No
No
No
??
Yes – if contractual
Yes – if in lieu of duties
No - if instead of overtime
Yes
Yes
Yes – unless for a car
3|P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Workshop 1
Regulation 8 Final Pay (General)
(1) Subject to regulations 9 to 11, on ceasing a period of active membership in an
employment, a member's final pay is that member's pensionable pay for as much of the
final pay period as the member is entitled to count as active membership, whether this
was accrued with the current or a previous employing authority, but excluding
pensionable pay from membership in a concurrent employment, or concurrent
employments.
(2) A member's final pay period is the year ending with the day on which he stops being
an active member or, if that would produce a higher figure, either of the two immediately
preceding years.
(3) In the case of part-time employment, the final pay is the pay that would have been
paid for a single comparable whole-time employment.
(4) Any reduction or suspension of a member's pensionable pay during the final pay
period because of his absence from work owing to illness or injury is disregarded.
_______________________________
Pensionable pay is calculated a year back from the date of leaving, so for example if the
leaving date is 30th November 2008 the pay would be calculated over the period 1
December 2007 to 30 November 2008. If you are using a previous year then you should
always calculate it to the anniversary of the date of leaving for example if you were using
the previous year in this case you would go from 1 December 2006 to 30 November 2007
If the pay rates are as follows: 01/12/2007 to 31/03/2008 = £26067.00
01/04/2008 to 30/11/2008 = £26835.00
You need to calculate the period 01/12/07 to 31/03/2008 at the rate of £26067.00 and
the period 01/04/2008 to 30/11/2008 at the rate of £26835.00
01/12/2007 to 31/03/2008 gives a number of days of 121 days
01/04/2008 to 30/11/2008 gives a number of days of 244 days
365 days
The days should always add up to 365. The only time you would include an extra day for
the leap year is if the person leaves on 29th February.
Pensionable pay
01/12/07 to 31/03/08 is 121 / 365 x £26067.00 = £ 8641.39
01/04/08 to 30/11/08 is 244 / 365 x £26835.00 = £17939.01
Pensionable Pay
October 2012
£26580.40
4|P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
The pensionable pay you calculate will always fall between the first and last salaries.
Why 365 days?
Strictly speaking, the final pay should be calculated in accordance with the way in which a
person is paid.
− Employers pay a salary or a wage
− Paid monthly i.e. 1/12th
− Paid lunar i.e. every 28 days
− 52 weeks
− 1/260th of the annual salary for each working day
Allows for many variations
i.e. leaving on the 12th of a month
− September would be 12/30ths
− October would be 12/31sts
− Or February would be 12/28ths
Example
Mrs Hutton retires at age 60 on 29 September 2010. She is monthly paid and her rates of
pay over the last year were:
01 April 2009 £16440.00 p.a.
01 April 2010 £17400.00 p.a.
Final/Pensionable Pay (calculated on months)
30 September 2009 to 31 March 2010
£16440.00 x 6/12
= £8220.00
£16440.00/12 x 01/30
= £ 45.67
01 April 2010 to 29 September 2010
£17400.00 x 5/12
= £7250.00
£17400.00/12 x 29/30
= £1401.67
Pensionable Pay
= £16917.34
Now compare
Final/Pensionable Pay (calculated on days)
30 September 2009 to 31 March 2010
£16440.00 x 183/365
= £8242.52
£17400.00 x 182/365
= £7250.00
Pensionable Pay
October 2012
= £16918.68
5|P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Workshop 2
Part-time employees
Benefit regulation 1 defines a whole-time employee as: ‘an employee whose contract of
employment provides –
(a) that he is such an employee for the Scheme, or
(b) that his contractual hours are not less than the number of contractual hours
for a person employed in that employment on a whole-time basis’.
According to benefit regulation 7 (3), part-time members accrue membership as an
‘appropriate fraction’ of the duration of membership they have. Benefit regulations 7 (4)
states ‘the numerator of that fraction is the number of contractual hours during the parttime service and its denominator is the number of contractual hours of that employment
if it were on a whole-time basis’.
_________________________
This appears to be a straight forward simple definition.
However, a classic example of this not working is that of the school crossing patroller. A
school crossing patroller works a maximum of 7.5 hours per week. If the whole-time
equivalent was left as 7.5 hours, it would lead to some absurd and inequitable benefit
levels should they change jobs during their membership of the scheme. As they are paid
pro-rata to a whole-time employee (i.e. 37 hours) it is sensible for them to be classed as a
part-timer and their membership is scaled down and their final pay scaled up accordingly.
Absurdity
School crossing patroller’s whole-time equivalent hours are 7.5 per week
Therefore a part time school crossing patroller working 5 hours per week for 6 years at a
rate of £6.00 per hour would have
pensionable pay of 6 x 7.5 x 52.14 = £2346.30 and
pensionable service of 6 x 5/7.5 = 4 years.
This would give a pension of 4/60 x 2346.30 = £156.42 p.a.
However, assume the member transferred to a cleaning post of 5 hours per week where
the whole-time equivalent hours are 37 at a rate of £6.00 per hour.
Pensionable pay is now 6 x 37 x 52.14 =£11575.08.
The same service already accrued would then give a pension of
4/60 x 11575.08 = £771.67 p.a.
Therefore for administrative purposes, the whole-time equivalent of all part time
employment is 37 hours and the counting of membership is therefore relatively clear, a
October 2012
6|P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
person on part-time hours of 30 hours per week for example accrues membership at
30/37 of calendar length.
Hours & Pay proportionality
Mrs Red works whole-time on a salary of £10,000.00 plus £2,000.00 enhancement for
weekend working. In one year she would contribute £660.00 (5.5% of £12,000.00)
After 10 years membership, Mrs Red would receive a benefit of
10 x 1/60 x12000 = £2,000.00 p.p. pension
Now if we take Mrs White & Mrs Blue who work the same job as Mrs Red but on a parttime basis. Both work 18.5 hours per week, but Mrs Blue does all the weekend work and
receives all of the weekend enhancement.
In one year, Mrs White would contribute £275.00 (5.5% of £5,000.00)
In one year, Mrs Blue would contribute £385.00 (5.5% of £7,000.00)
Regulation 8 states ‘In the case of part-time employment, the final pay is the pay which
would have been paid for a single comparable whole-time employment.’
If we take this statement literally, the whole-time equivalent pay would be £12,000.00
So after 10 years Mrs White would get a benefit of 5 x 1/60 x £12000 = £1,000.00 p.a.
Similarly,
After 10 years Mrs Blue would get a benefit of 5 x 1/60 x £12000 = £1,000.00 p.a.
Is this fair?
Mrs White would have paid £2750.00 in contributions over the 10 yrs
Yet Mrs Blue would have paid £3850.00 in contributions over the 10 yrs
I.e. Mrs Blue paid in 40% more
More Logical
If Mrs White’s whole-time equivalent pay was £10,000.00 (a 37 hour working week
without weekend enhancement.
Mrs White’s benefit would be 5 x 1/60 x £10,000 = £833.33 p.a.
Is Mrs Blue’s whole-time equivalent pay still £12,000.00? ( a whole-time post with
weekend enhancements),
Mrs Blue’s benefit would be 5 x 1/60 x £12000 = £1,000 p.a.
Is this fair?
Mrs Blue is receiving 20% more in benefit, but has paid 40% more in contributions.
Would it be fairer to say that the whole-time equivalent for a half-timer with one
weekend enhancement is one whole-timer with two.
October 2012
7|P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Mrs Blue’s whole-time equivalent pay would be £14,000.00.
Her benefit would be 5 x 1/60 x £14,000 = £1166.67 p.a.
From a fund’s point of view
They paid Mrs White £833.33 and Mrs Blue £1166.67, a total of £2000.00 (equal to
Mrs Red’s benefits)
In return for contributions of from Mrs White of £2750.00 and £3850.00 from Mrs
Blue, a total of £6600.00 (equal to Mrs Red’s contributions)
From the member’s point of view
Mrs Blue has paid 40% more in contributions than Mrs White and has received
40% more in benefits than Mrs White
Summary
.
Service
Contributions Pension
Paid
Paid
Pensionable
Pay
Mrs Red
10 yrs
£6600.00
£2000.00
£1200.00
Mrs White
5 yrs
£2750.00
£1000.00
£1200.00
Mrs Blue
5 yrs
£3850.00
£1000.00
£1200.00
Mrs White
5 yrs
£2750.00
£833.33
£1000.00
Mrs Blue
5 yrs
£2850.00
£1166.67
£1400.00
However
Could it then be claimed that the whole time equivalent for Mrs Blue is £14000.00,
thereby moving her into the next contribution band.
Mrs Blue would therefore pay 5.8% of £7,000.00 being £406.00.
An extra £210.00 over 10 years in the fund’s coffers.
Consider another conundrum
Mrs Green worked along side Mrs Red until the last year, when she reduced to exactly
half time working the weekends. She receives a salary of £5,000.00 plus the weekend
enhancement of £2,000.00.
Should her pension be: (a) 9.5 x 1/60 x £14000.00 = £2216.67 or
(b) 9.5 x 1/60 x £12000.00 = £1900.00
If (a) Mrs Green would receive more pension than Mrs Red! – effectively the first 9 yrs
have been increased in value by 16% (i.e. based on £14000 instead of £12000)
October 2012
8|P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Is (b) mathematically correct! – effectively Mrs Green’s benefits are 9.5/10ths of Mrs
Red’s.
However
Mrs Green has paid a contribution in her final year that is nearly 60% of Mrs Red’s.
Benefit regulation 8 (3), in describing final pay states: ‘in the case of part-time
employment, the final pay is the pay which would have been paid for a single comparable
whole-time employment’.
To calculate the final pay for a part-timer working 30 hours per week would be relatively
simple, using the actual pay received in the final year and multiplying by 37/30.
So an example for a person working 30 hours per week and receiving the following pay:
01/12/2007 to 31/03/2008 = £21135.41
01/04/2008 to 31/03/2008 = £21758.11
You would use the whole time equivalent
01/12/2007 to 31/03/2008 = £26067.00 (£21135.41 / 30 hours x 37 hours)
01/04/2008 to 30/11/2008 =£ 26835.00 (£21758.11 / 30 hours x 37 hours)
The calculation of the pensionable pay would then be completed as previously.
Sometimes you will be provided with an hourly rate. If this is the case you will need to
calculate the whole time annual salary. This is done by taking the hourly rate and
multiplying it by 37 (37 is the whole time equivalent hours for the job) and then
multiplying this by 52.14.
For example if the pay rates are as follows
01/12/2007 to 31/03/2008 = £ 9.56 per hour
01/04/2008 to 30/11/2008 = £ 10.28 per hour
The annual salaries would be
9.56 x 37 x 52.14 = £18442.96
10.28 x 37 x 52.14 = £19831.97
The pensionable pay would therefore be
01/12/07 to 31/03/08 is 121 / 365 x £18442.96 = £ 6113.97
01/04/08 to 30/11/08 is 244 / 365 x £19831.97 = £13257.54
Pensionable Pay
£19371.51
Again, the pensionable pay calculated will always fall within the first and last salaries.
Workshop 3
Term-time members
The original intention of the new look LGPS was that membership and final pay
calculations for term-time employees should be pro-rated. As stated previously, an
employee working part-time would have their service adjusted to take account of the
part-time hours, thereby allowing the use of the whole-time equivalent pay in the
calculation of the pensionable pay. Part-timers service is recorded as ??.??/37.00
October 2012
9|P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
To keep uniformity with part-timers, a term-time employee also has their service
adjusted, the whole-time equivalent pay is then used in the calculation of the pensionable
pay.
An employee working 37 hours per week for 44 weeks per year would have their
membership recorded as 31.22/37.00 (i.e. 37 x44/52.14)
If the employee’s actual pay was £20,000.00, the final pay for this term-time employee
would be grossed-up for benefit calculations i.e. £20000.00 x 52.14/44 = £23700.00
Part-time, term-time members
Similarly, a part-time, term-time employee would have the service membership adjusted
for the part-time and the term-time.
A part-time, term-time employee working 20 hours per week for 44 weeks per year would
have their membership recorded as 16.88/37.00 ( i.e. 20 x 44/52.14)
If the employee’s actual pay was £10,810.81, the final pay for this term-time employee
would be grossed-up for benefit calculations i.e. £10810.81 x 52.14/44 = £23700.00
For ease of administering and calculating benefits, Administering authorities should prorata the membership and use the whole-time equivalent pensionable pay
Workshop 4
What is the difference between worked and paid hours?
LGPS benefits are usually based on total membership and pay earned over the last year of
membership, or one of the two previous years if this is higher. This is commonly known as
the ‘best of the last 3 years’ rule. The more membership and the higher the pay, the
greater the benefits will be.
For employees who work less than whole time (usually 37 hours per week) and/or are
paid term time only, scheme membership is scaled down to the whole time equivalent
length based on the contractual hours worked and weeks paid. The final pay is then scaled
up to the whole time equivalent rate. A part-time or term-time worker receives less pay
and so pays less into the LGPS than a full-timer. Therefore, they will build up
proportionately lower benefits.
Hours/weeks worked are used in the calculation of periods of membership (previously
referred to as reckonable service)
Hours/weeks paid are used to calculate final pay
Is all pay scaled up to a whole-time equivalent?
This is not as straight forward as might first appear!
October 2012
10 | P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Basically, pensionable pay for a given period is the Whole Time Equivalent rate plus the
monetary amount of pensionable extras. However, if the additional element paid is in
direct proportion to the contractual hours then it should be scaled upward for part-time
or term time members.
October 2012
11 | P a g e
Monthly
Service
1.4.74 – 31.3.85
1.4.85 – 31.3.92
1.4.92 - date
1.4.00 - date
(A) Actual Hours Worked
Contractual Hours Worked
Contractual Hours Worked
Contractual Hours Worked
Contractual Hours Worked
Pay
(B) W T Equiv. Worked
37 / 39 / 40
37 / 39
37 / 39
37 / 39
(C) Actual Hours Paid
(D) W T Equiv. Paid
Available
Available
Available
Available
Available
(C) Actual Hours Paid
(D) W T Equiv. Paid
Available
Available
Available
B÷A×C=D
B÷A×C=D
Weekly Paid
Service
1.4.74 – 31.3.85
1.4.85 – 31.3.92
1.4.92 - date
1.4.00 - date
(A) Actual Hours Worked
Input as W T
Input as W T
Available
Available
Pay
(B) W T Equiv. Worked
N/A
N/A
37 / 39
37 / 39
Home Care Assistants
Service
1.4.74 – 31.3.85
1.4.85 – 31.3.92
1.4.92 - date
1.4.00 - date
(A) Actual Hours Worked
Average worked in 2000/2001
Average worked in 2000/2001
Average worked in 2000/2001
Available
Pay
(B) W T Equiv. Worked
37 / 39 / 40
37 / 39
37 / 39
37 / 39
(C) Actual Hours Paid
(D) W T Equiv. Paid
Available
Available
Available
B÷A×C=D
B÷A×C=D
SICK LEAVE - If a member is absent on sick leave he/she is treated for pension purposes as having received full normal pay. Where the member works noncyclical fluctuating hours an average from a previous period can used or a comparison made with another member employed in a comparable employment.
Basic roster hours reduce the level of pension benefits and will not be accepted.
October 2012
11 | P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Regulation 9 Final Pay (reserve forces, maternity leave etc)
(1) If a member's final pay period includes reserve forces service leave, his final pay is(a) in a case where he has continued to pay contributions in respect of it, the
amount it would have been if his reserve forces pay were pay received in his
former local government employment, or
(b) otherwise, the amount it would have been if he had continued to be
employed in his former employment during the period of that leave.
(2) For the purposes of these regulations, a member's final pay for any period of
maternity, paternity or adoption absence during the final pay period in respect of which
he pays or is treated as paying contributions is the pay he would have received had he
not been absent.
(3) If a member is absent from work for any other reason during his final pay period, he
is only to be treated for these regulations as having received the pensionable pay he
would otherwise have received if he has continued to pay contributions in respect of it
for the period he is absent.
(4) If a member is only entitled to count part of the year specified in regulation 8(2) as a
period of active membership in relation to the employment which he ceases to hold, his
final pay is his pensionable pay during that part multiplied by 365 and divided by the
number of days in that part.
Authorised leave
Mr Fickle chooses not to pay contributions for the period 1/10/2008 to 30/11/2008 and
leaves on 30/04/2009. Whilst the employee is a member throughout the whole of the
final year, they are only entitled to count as active membership 304 days of the last
year. So as per regulation 9 (4) the final pay must be scaled-up.
Pay 01/05/2008 £16,500.00 no changes
01/05/2008 to 30/09/2008 153/365 x 16,500.00 = £ 6,916.44
01/10/2008 to 30/11/2008 (61 days for which no contributions were paid)
01/12/2008 to 30/04/2009 151/365 x 16,500.00 = £ 6,826.03
= £13,742.47
Pensionable pay = £13,742.47 x 365/304 = £16,500.00
Same scenario, but Mr Fickle’s rates of pay were:
01/05/2008 £14,100.00
01/12/2008 £15,500.00
01/01/2009 £16,500.00
01/05/2008 to 30/09/2008 153/365 x 14,100.00 = £ 5,910.41
01/10/2008 to 30/11/2008 (61 days for which no contributions were paid)
01/12/2008 to 31/12/2008 31/365 x 15,500.00 = £ 1,316.44
01/01/2009 to 30/04/2009 120/365 x 16,500.00 = £ 5,424.66
= £12,651.51
Pensionable pay = £12,651.51 x 365/304 = £15,190.14
October 2012
12| P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Authorised leave – maternity leave
Mrs Fickle goes on maternity leave, doesn’t return to work or pay the contributions for
the period of paid additional maternity leave (unpaid leave commenced 30/01/2009 and
her date of leaving was 30/04/2009
Pay 01/05/2008 £14,100.00
01/10/2008 £15,500.00
01/01/2009 £16,500.00
01/05/2008 to 30/09/2008 153/365 x 14,100.00 = £ 5,910.41
01/10/2008 to 31/12/2008 92/365 x 15,500.00 = £ 3,906.85
01/01/2009 to 29/01/2009 29/365 x 16,500.00 = £ 1,310.95
= £11,128.21
Pay = £11,128.21 x 365/274 = £14,824.08
Authorised leave – strike break
Mr Prentis goes on strike and doesn’t elect to pay the contributions on 16 and 17 July
2009, then leaves on 30/09/2009
Pay
01/10/2008 £20,000.00
01/04/2009 £22,000.00
01/10/2008 to 31/03/2009 182/365 x 20,000.00 = £ 9,972.60
01/04/2009 to 30/09/2009 183/365 x 22,000.00 = £11,030.14
Less pay lost on strike 2/260 x 22,000.00
= £ 169.23
= £20,833.51
Pay = £20,833.51 x 365/363 = £20,948.30
Grossing-up the pay by 365 when the pay that is lost through the strike is calculated on
260ths will always cause an anomaly.
Workshop 5
October 2012
12| P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Regulation 10 Final Pay (reductions)
(1) Subject to paragraph (2), where a member's pensionable pay in a continuous period
of employment is reduced or restricted(a) because the member chooses to be employed by the same employer at a
lower grade or with less responsibility;
(b) for the purposes of achieving equal pay in relation to other employees of that
employer;
(c) as a result of a job evaluation exercise;
(d) because of a change in the member's contract of employment resulting in the
cessation or restriction of, or reduction in, payments or benefits specified in
the member's contract of employment as being pensionable emoluments; or
(e) because the rate at which the member's rate of pay may be increased is
restricted in such a way that it is likely that the rate of the member's
retirement pension will be adversely affected, the member may choose to
have his or her final pay calculated in accordance with paragraph (4), by
giving notice(i) in writing;
(ii) to the appropriate administering authority; and
(iii) no later than one month prior to the date on which the member
ceases active membership.
(2) Where notice under this regulation has not been given, and a member to whom it
applies has died, the appropriate administering authority may give notice on the
member's behalf (whether or not the period within which the member could have given
notice has expired).
(3) Paragraph (1) does not apply if the member's employment on reduced pensionable
pay(a) commences before the beginning of the period of ten years ending with the
member's last day as an active member;
(b) immediately follows a period in which the member occupies a post on a
temporary basis at a higher rate of pay; or
(c) is because the member chooses to reduce his or her hours of work or to be
employed at a lower grade, for the purposes of regulation 18 (flexible
retirement).
(4) Subject to regulations 8(3) and 8(4), the calculation mentioned in paragraph (1) is
made by dividing by three the member's total annual pensionable pay in any three
consecutive years of the member's choice, ending with 31st March, within the period of
thirteen years ending with the member's last day as an active member.
(5) Paragraph (1) (a) applies to a member who is the subject of(a) a transfer to which the Transfer of Undertakings (Protection of Employment)
Regulations 2006 ("the TUPE Regulations") apply; or
(b) a transfer which is treated as if it were a relevant transfer within the meaning
of regulations 2(1) and 3 of the TUPE Regulations, notwithstanding regulation
3(5) of those Regulations,
as if the transferor employer were the same employer as the transferee authority.
October 2012
12| P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Reduction/Restriction in pay before 1 April 2008 “Certificate of protection
of pension benefits”
If a members pay was reduced or restricted for reasons beyond their control before 1
April 2008 they could request a ‘certificate of protection of pension benefits’. An
employer must issue a certificate where requested within 12 months of the
reduction/restriction. If a member does not ask within 12 months an employer does not
have to provide a certificate but can choose to do so.
A certificate can be issued if before 1 April 2008, otherwise than by virtue of a member’s
own circumstances•
•
His / her rate of pay is reduced; or
Because the rate at which the member’s rate of pay may be increased is restricted in
such a way that it is likely that the rate of the member’s retirement pension will be
adversely affected.
A certificate CAN NOT be issued where the member•
•
•
Takes a voluntary or temporary reduction in pay; or
Is returning to their normal post after a temporary promotion; or
Is simply reducing their working hours or weeks, and the whole time equivalent
remains constant.
If a member has been issued with a “certificate of protection of pension benefits” and
they leave the LGPS within 10 years of the reduction or restriction in pay, their benefits
will be based upon the greater of•
•
any one of the best year's pay in the last five years prior to leaving; or
the best consecutive three year average in the last thirteen years
ending with a day of which the last day is the anniversary.
The regulations actually provide for the member to elect which pay figure is to be used
in the calculation of their benefits. In practice it is expected that employers would
choose whichever pay figure will produce the highest amount (allowing for the effects
of pensions increase). It is therefore most important for employers to note that when
certificates of protection are issued, there is a need to keep records of pay for far longer
than required for HMRC purposes.
The certificate provides members with limited protection of benefits – for up to 10 years
from the date of reduction or restriction. It is also transferable across employments and
funds, where membership is aggregated.
October 2012
12| P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Reduction/Restriction in pay on or after 1 April 2008 “Notification of
protection of pensionable pay”
Significant changes were made to the Scheme with effect from 1 April 2008. Certificates
of Protection were not carried forward from the 1997 regulations. The new provision
covers voluntary reduction cases as well as compulsory reduction cases, which means
that the employer will pick up the cost where the Scheme member’s pay is reduced
within 10 years prior to leaving through their own choice. Also, no new certificates can
be issued in respect of drops/restrictions in pay occurring after 31 March 2008.
Although the requirement to request/issue certificates has been removed, TPF
employers are now required to issue a “Notification of Protection of Pensionable Pay”
for any relevant reduction/restriction that occurs on or after 1 April 2008.
Notifications must be issued where a member’s pensionable pay in a continuous period
of employment is reduced or restricted• because the member chooses to be employed by the same employer at a lower
grade or with less responsibility;
• for the purposes of achieving equal pay in relation to other employees of that
employer;
• as a result of a job evaluation exercise;
• because a change in the member’s contract of employment resulting in the
cessation or restriction of, or reduction in, payments or benefits specified in the
member’s contract of employment as being pensionable emoluments; or
• because the rate at which the member’s rate of pay may be increased is restricted in
such a way that it is likely that the rate of the member’s retirement pension will be
adversely affected.
The above DO NOT apply where the reduction/restriction• immediately follows a period in which the member occupies a post on a temporary
basis at a higher rate of pay;
• is because the member chooses to reduce his or her hours of work or be employed
at a lower grade for the purposes of regulation 18 (flexible retirement); or
• is because the member is simply reducing their working hours or weeks.
Protection means that retirement benefits can be based upon either• any one of the last 3 years ending with the day they ceased to be a member; or
• an average of any three consecutive years ending 31 March within the last thirteen
ending with the day membership ceased.
Protection IS NOT transferable unless TUPE applies.
Various final pay scenarios covering many cases can be found at the end of the manual.
If at the point of reduction/restriction a member changes job and is issued with a new
contract of employment, the employer is required to complete a leavers form and a
starters form in addition to the appropriate certificate/notification of protection of pay.
If a new contract is not issued e.g. the member remains in the same post but is down
graded or loses a pensionable allowance, the employer should complete a
certificate/notification of protection of pay.
A variation form is no longer required.
October 2012
12| P a g e
Local Government Pension Scheme Training Manual
October 2012
Pensionable Pay
12| P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
What is the effective date of the reduction/restriction?
The date of the contractual change which is usually the day the members pay goes
down. If pay is restricted or a detriment allowance is paid, the effective date is still the
date of the contractual change.
The protected pay date should be recorded in axis on page 1 of the scheme
contributions screen and the doc ID for the certificate /notification is REDINPAY.
If a member’s pay is ‘frozen’ or an element of pay is paid as detriment that amount is a
temporary payment over and above their substantive post. A certificate should
therefore only be issued once and not each time the detriment allowance is reduced,
e.g. where it is paid on a sliding scale (yr 1 100%, yr 2 75%, yr 3 50%).
The entitlement to the protection is as a result of a permanent change to their
substantive post.
Deferred benefits following a reduction in pay
Younger members, who are a long way off retirement or members who leave more than
10 years after a reduction/restriction to pay may not benefit from the protections
outlined above.
If a member changes job, i.e. gets a new contract, following a reduction/restriction to
pay they will be deemed a leaver and new starter and deferred benefits will be
awarded.
Deferred benefits are usually awarded to a member who leaves the scheme before
retirement age, providing they have at least 3 months LGPS membership, or have
transferred in other pension rights, or already have a deferred benefit in the scheme. If
a deferred member re-joins the Scheme they can ask for their deferred benefits to be
transferred to their new job. This doesn’t happen automatically; a written election must
be made within 12 months of re-joining.
October 2012
12| P a g e
Local Government Pension Scheme Training Manual
On or before 31/3/08
Pensionable Pay
On or after 1/4/08
FINAL PAY
All members - the best of the last 3 years rule (ending with the anniversary of the date membership ceases)
The 3 year period covers local government employment and is not restricted to
The 3 year period is restricted to being pay with current employer (unless the member
current employer
has aggregated their membership)
PROTECTED PAY
If leaves the scheme within 10 years of the reduction or restriction AND a
If leaves the scheme within 10 years of the reduction or restriction, then final pay can
certificate of protection has been issued, then final pay can bebeThe best single year in the last 5 years of membership (ending with the anniversary The annual average of any consecutive 3 year period ending with 31st March, in the 13
of date of leaving), OR
years prior to DOL
The annual average of a consecutive 3 year period in the last 13 (ending with the
If a member leaves in ,say 2012, the 13 year window includes pay prior to 1/4/08 and
anniversary of date of leaving)
so, in effect, includes a retrospective element (i.e. covers a period prior to when the
new-look Scheme came into operation)
The certificate is transferable across employments and funds, where membership
Protection is not transferable unless TUPE applies.
has been aggregated
Once a period of 10 years has passed, the certificate no longer has any effect. If a
Certificates are no longer issued but employers must complete a ‘Notification of
certificate has not been issued there is no protection other than under the best of
Protection of Pay’ form. Once a period of 10 years has passed, protection no longer
the last 3 years rule
applies
Protection applies if, otherwise than by virtue of a member’s own circumstancesProtection applies where a member’s pay in a *continuous period of employment is
reduced or restricted• his/her rate of pay is reduced, or
• because the member chooses to be employed by the same employer at a lower
• the rate at which it may be increased is restricted in such a way that it is likely
grade or with less responsibility;
that the rate of their retirement pension will be adversely affected, and
a certificate of protection of pensionable pay has been issued.
• for the purposes of achieving equal pay in relation to other employees of that
employer;
(A certificate can only be issued where the reduction or restriction in pay is
• as a result of a job evaluation exercise;
enforced)
• because a change in the member’s contract of employment resulting in the
cessation or restriction of, or reduction in, payments or benefits specified in the
member’s contract of employment as being pensionable emoluments; or
• because the rate at which the member’s rate of pay may be increased is restricted
in such a way that it is likely that the rate of the member’s retirement pension will
be adversely affected.
*unless a person has changed employers in the last 10 years in circumstances where
TUPE or the move is treated as a TUPE move applies, e.g. in a machinery of government
change or contracting out exercise
October 2012
12| P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
On or before 31/3/08
Protection does not apply where • a member takes a voluntary or temporary reduction in pay; or
• they are returning to their normal post after a temporary promotion; or
• they are simply reducing their working hours or weeks (and the whole
time equivalent pay remains unchanged).
On or after 1/4/08
Protection does not apply where• the reduction/restriction immediately follows a period in which the
member occupies a post on a temporary basis at a higher rate of pay; or
• the member chooses to reduce his or her hours of work or to be
employed at a lower grade, for the purposes of flexible retirement; or
• they are simply reducing their working hours or weeks (and the whole
time equivalent pay remains unchanged).
Although the regulations provide for the member to elect which pay figure is to be used, in practice it is the employer that will choose whichever pay
figure will produce the highest amount (after allowing for the effects of pensions increase).
The pensionable pay information we require to be returned depends upon what, if any, protection the member has. Where the pay figure for a twelve
month period is ‘re-valued’ to provide an index-linked pay figure, we have built this indexation calculation into the spreadsheet and so you only need to
enter the full time equivalent pensionable pay figure for the relevant period.
Completing the Spreadsheet
Reduction in pay since
No
Reduction in pay since
Yes
01/04/2008?
01/04/2008?
Reduction in pay before 1/4/08 Yes
Reduction in pay before 1/4/08
No
AND certificate of protection
AND certificate of protection
held?
held?
Important: The relevant pay figure is the whole time equivalent for the year Important: The relevant pay figure is the whole time equivalent for the year
in question and not the annual salary. It will always be a year ending with
in question and not the annual salary. For the best of the last years rule it
the anniversary of the date membership ceases.
will always be a year ending with the anniversary of the date membership
ceases. To calculate benefits using protected pay it will be each period
ending 31st March (within the last 13 years)
Where there has been a reduction before AND after April 2008
Reduction in pay since 01/04/2008?
Yes
Reduction in pay before 1/1/08 AND certificate of protection held?
Yes
October 2012
12| P a g e
Example of pay calculation over thirteen years
Leaver on 30 September 2020
Year to 30/9/20
£17,250
Year to 31/3/20
£16,920
Year to 30/9/19
£16,470
Year to 31/3/19
£16,020
Year to 30/9/18
£15,660
Year to 31/3/18
£15,300
Year to 31/3/17
£14,760
Year to 31/3/16
£14,247
Year to 31/3/15
£13,746
Year to 31/3/14
£13,260
Year to 31/3/13
£15,981
Year to 31/3/12
£15,183
Year to 31/3/11
£14,418
Year to 31/3/10
£13,890
Year to 31/3/09
£13,290
Year to 31/3/08
£12,750
Last 3 years pay to date of leaving
01/10/2019 to 30/09/2020
01/10/2018 to 30/09/2019
01/10/2017 to 30/09/2018
£17,250.00
£16,470.00
£15,660.00
Three-year averages
01/04/2017 to 31/03/2020
01/04/2016 to 31/03/2019
01/04/2015 to 31/03/2018
01/04/2014 to 31/03/2017
01/04/2013 to 31/03/2016
01/04/2012 to 31/03/2015
01/04/2011 to 31/03/2014
01/04/2010 to 31/03/2013
01/04/2009 to 31/03/2012
01/04/2008 to 31/03/2011
01/04/2007 to 31/03/2010
£16,080
£15,360
£14,769
£14,251
£13,751
£14,329
£14,808
£15,194
£14,497
£13,866
£13,310
£16,080.00
1.55% £15,598.08
4.54% £15,439.51
6.89% £15,232.89
8.70% £14,947.34
11.43%£15,966.80
13.86%£16,860.39
16.32%£17,673.66
20.27%£17,435.54
23.69%£17,150.86
27.41%£16,958.27
The best final pay figure to be used would therefore be £15194.00. The member’s
benefits are calculated on £15194.00 and pensions increase is then added to the
lump sum and the pension payable.
Workshops 6
October 2012
11 | P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Final Pay Scenarios for Post 08 Reductions
A member moves (post 31 March 2008) to job with lower grade or less responsibility
with same employer, aggregates membership and leaves within 10 years•
As the reduction in grade or move to a job with less responsibility occurred within
the last 10 years with the “same employer” and the member has remained in
continuous employment with the “same employer”, the member can choose (as
an alternative to best of the last 3 years) to have benefits calculated on the
average of any consecutive 3 years pay ending with 31st March within the period
of 10 years ending with his last day as an active member.
A member moves (post 31 March 2008) to job with lower grade or less responsibility
with same employer, does NOT aggregate membership and leaves within 10 years
•
The member has already benefited from the higher pay by retaining deferred
benefits. Therefore only the pay earned following the reduction in grade when
calculating the second benefit should be taken into account.
A member moves (post 31 March 2008) to job with lower grade or less responsibility
with same employer and leaves within 10 years, but was previously with another
employer and had aggregated benefits
•
Although the member is covered by the 10 year protection rule, only pay earned
with the current employer should be taken into account.
A member moves (post 31 March 2008) to job with lower grade or less responsibility
with same employer and leaves within 10 years, but was previously with another
employer and had NOT aggregated benefits
•
Although the member is covered by the 10 year protection rule, only pay earned
with the current employer should be taken into account.
A member moves (post 31 March 2008) to job with lower grade or less responsibility
but then voluntarily moves to a different employer, doesn’t aggregate and leaves
within 10 years of the original reduction in grade
•
Cannot take advantage of 10 year protection as has not been in continuous
employment with the same employer since the drop in grade. Final pay will be
calculated using only pay earned in the employment from which they are retiring
A member moves (post 31 March 2008) to job with lower grade or less responsibility
but then is TUPE transferred to a different employer, aggregates membership
(automatic now) and leaves within 10 years of the original reduction in grade
Member can take advantage of 10 year protection (even if the TUPE transfer
occurred prior to 1 April 2008)
October 2012
12| P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
A member moves (post 31 March 2008) to job with lower grade or less responsibility
but then voluntarily moves to a different employer, aggregates membership, then
again moves to a job with lower grade or less responsibility and then leaves within 10
years of the second reduction in grade
•
Although the member is covered by the 10 year protection rule, only pay earned
following the second drop should be taken into account
A member moves (post 31 March 2008) to job with lower grade or less responsibility
but then voluntarily moves to a different employer, does NOT aggregate
membership, then again moves to a job with lower grade or less responsibility and
then leaves within 10 years of the second reduction in grade
•
Use the best three in ten calculation at the point of leaving the first employer
(deferred benefits) and a separate three in ten calculation with the last employer
based solely on pay with that employer
A member moves (post 31 March 2008) to job with lower grade or less responsibility
with same employer, has a break, returns and aggregates membership and leaves
within 10 years of original reduction in grade
•
Cannot take advantage of 10 year protection as has not been in continuous
employment with the same employer since the drop in grade. Final pay will be
calculated using only pay earned in the employment from which they are retiring
A member has a break, returns to same employer and aggregates membership, then
moves (post 31 March 2008) to job with lower grade or less responsibility with same
employer, and leaves within 10 years of reduction in grade
•
Use the best in the last three years calculation. It appears that the 10 year period
can include pay from the earlier period even though there has been a break.
A member has a break, returns to same employer but does NOT aggregate
membership, then moves (post 31 March 2008) to job with lower grade or less
responsibility with same employer, and leaves within 10 years of reduction in grade
•
Although the member is covered by the 10 year protection rule, only pay earned
following the second drop should be taken into account
October 2012
12| P a g e
Local Government Pension Scheme Training Manual
Pensionable Pay
Regulation 11 Final Pay (fees)
(1) Subject to paragraph (2), where a variable-time employee's pensionable pay for
the purposes of regulation 8(1) consists of or includes fees, his or her final pay is
calculated as the sum of –
(a) the average of all such fees for the three consecutive years (or the
employee's total period of membership if less) ending with the final pay
period; and
(b) any sums falling within regulation 4(1), other than fees, for the final pay
period.
(2) But a member's employer may consent to the member having his or her final pay
calculated by the substitution for paragraph (1)(a) of the average of all such fees for
any three consecutive years ending on the 31st March within the period of ten years
ending with the last day he or she was an active member.
The only employees whose pensionable pay would be calculated using fees would
be Returning Officers.
October 2012
12| P a g e