Bulletin - February 2020
Welcome to the February edition of Employers’ Bulletin, your monthly update on everything you need to know and tell your employees about their pensions. We value your feedback, so please get in touch email@example.com if you’d like to share your thoughts.
IN THIS ISSUE
Full-time equivalent final pay (leap year)
Audit Scotland update -IAS19/FRS102 reporting
Member estimate requests
TELL YOUR MEMBERS:
As highlighted in our October and December bulletins - under Regulation 58 of the Local Government Pension Scheme (Scotland) Regulations 2018, each employer participating in the scheme is required to formulate a policy concerning the exercise of certain discretions contained within the regulations.
- Contributions - If the contributions on the leaver form are less than and within £30 of the contributions that have been posted by the employer on iConnect, we will not query this. Any figure above information previously posted on iConnect will be queried.
- CARE pay – If the CARE pay on the leaver form is less than and within £750 of the CARE pay that has been posted by the employer through iConnect, we will not query this. Any figure above information previously posted on iConnect will be queried.
- Final pay – If the final pay on the leaver form is less than and within £1000 of the final pay that has most recently been uploaded by the employer through iConnect, this will not be queried. Any figure above information previously posted on iConnect will be queried
We will also now highlight retiral queries in red for urgent attention.
- Assets and liabilities must be valued consistently
- As such, whilst the Scheme Actuary could add on expected future service accrual to the liabilities, if they were to do this they would also have to add on expected future primary contributions onto the assets to value them consistently
- The Scheme Actuary is unable to value assets with an effective date that is in the future because they do not know what future investment returns will be
- Similarly, with regards the liability valuation, the Scheme Actuary does not know future government bond yields will be and therefore the market information they rely on (and hence actuarial assumptions) will be out of date in any case come the eventual cessation date
Audit Scotland update – IAS19/FRS102 reporting
Member estimate requests
- flexible retirement
- Ill-health retirement
- redundancy or efficiency retirement
TELL YOUR MEMBERS
Lothian Pension Fund’s My Pension Online service allows you to run voluntary retirement estimates using online benefit projectors. The benefit projectors will take into account any Rule of 85 protection. The online service is quick and easy to use and allows you model your retirement benefits, including giving up some of your pension for a bigger lump sum.
The information used within the My Pension Online service is identical to the information held on the pension administration system. This means that any estimates you run using the My Pension Online service would be identical to the information on an estimate produced by the Fund. Please note: AVCs are not included as their value is only known at retirement.
We have also introduced a new document upload facility within the My Pension Online service which allows you to upload documents to the Fund. Visit www.lpf.org.uk and sign in or register for the My Pension online then choose document upload or benefit projectors from the dashboard to use these services. You can also change your nomination and address online.
Mark Smith: 0131 529 4642
George Kirk: 0131 529 4652
i-Connect e-mail: firstname.lastname@example.org
Yvonne Archibald: 0131 529 4620
Contact details for members
Members pension helpline: 0131 529 4638
Do you have feedback for us? We’d love to hear from you, so please send your thoughts to email@example.com
The Fund has set a monetary limit for queries with regards to final pays, CARE pays and contributions to try to reduce the number of queries sent to scheme employers.
If the difference between information previously submitted on iConnect and information submitted on the leaving form is less than, and within the monetary limit, then this will not be queried. The limits are shown below:
· Contributions - If the contributions on the leaver form are less than and within £30 of the contributions that have been posted by the employer on iConnect, we will not query this. Any figure above information previously posted on iConnect will be queried.
· CARE pay – If the CARE pay on the leaver form is less than and within £750 of the CARE pay that has been posted by the employer through iConnect, we will not query this. Any figure above information previously posted on iConnect will be queried.
· Final pay – If the final pay on the leaver form is less than and within £1000 of the final pay that has most recently been uploaded by the employer through iConnect, this will not be queried. Any figure above information previously posted on iConnect will be queried.
As you know we monitor employer performance and provide updates to employers on a regular basis. Measures for responding to leaver queries are shown below:
· Retiral related queries – respond within 5 working days
· Early leaver queries – respond within 10 working days
If the Fund doesn’t receive a response within this time scale, where possible, the Fund will process the member’s entitlement. Cases that have been processed in this way will be included in the Pensions Administration Strategy (PAS) performance reports.
However, if the Fund believe a figure provided is too high, the case will not be processed and will continue to be queried until a response is received. This is to ensure no overpayments occur.
Definitions and examples of pay are shown below.
Final pay - the final pay is the members full-time equivalent pay for their final year (365 days) of membership. If either of the two previous years pays are higher, please provide these figures as well (this is particularly relevant in an employee received additional pensionable payments that can fluctuate from year to year). The Final Pay figure is necessary for member’s who were enrolled in the scheme before the 1st April 2015, as this is the pay used to calculate final salary benefits. If there is service before the 1st of April 2015, in all instances this figure must be provided. If all service is after the 31st of March 2015 then final pay does not need to be provided. However, final pay may be required by the Fund in cases where a member has transferred in previous Final Salary benefits.
Example; if the member left 31st July 2019 -
The year ending with the last day of membership would be from 01/08/2018 to 31/07/2019.
For the previous year’s pay, the dates would be from 01/08/2017 to the 31/08/2018.
For two year’s previous pay, the dates would be from 01/08/2016 to 31/08/2017.
- The Final Pay does not include non-contractual overtime.
- The Final Pay should be uprated to a full time equivalent (FTE) if the member is part time.
- The Final Pay should be sessionalised using the sessionalised Rate of Pay. For details on this please see below.
- Final Pay should include any additional pensionable payments that are paid to the employees.
- Any back dated pay awards should be included within the FTE for the dates the award should have been applicable form.
If the relevant period includes a period of sick pay where the employee was on half or no pay, the reduction in pay should be ignored. The final pay calculation should show the pay the employee would have received had they not been sick.
1.2 Rate of Pay - Used to calculate the member’s FTE. The rate of pay can be changed throughout the year, therefore it is important for the calculation of the FTE that if there have been changes, these are taken into account.
An example on how to calculate the final pay when the member had change to their rate of pay 3 times throughout their last 365 days in employment is shown below;
@ 01/08/2018 = £20000 @ 01/12/2018 = £22000 @ 01/04/2019 = £24000
The FTE would be calculated by;
01/08/2018 to 30/11/2018 = 122 days 01/12/2018 to 31/03/2019 = 121 days
£20000 / 365 * 122 = £6684.93 £22000 / 365 * 121 = £7293.15
01/04/2019 to 31/07/2019 = 122 days
£24000 / 365 * 122 = £8021.92
£6684.93 + £7293.15 + £8021.92 = £22000
2. CARE Pay/Pensionable Pay – From the 1st of April 2015, the pension scheme changed from a Final Salary scheme to Care Average Revalued Earnings scheme (CARE). The CARE pay is the actual pay that the member has paid pension contributions on within the last scheme year. Scheme years run from 01/04 to 31/03 each year. We only request that you confirm the last two scheme years of CARE pay as these are checked by the Fund at year end. If the member had a period of reduced pay as a result of sickness or paid maternity leave, then the Assumed Pensionable Pay for these periods should always be provided.
For example; if the member joined the scheme on the 1st August 2017, and then left 31st of July 2019, then we would require the pays for the scheme years of 19/20 and 18/19, as these were the last two scheme years they were a member in.
For 19/20, the scheme year would be from 01/04/2019 to 31/07/2019.
For 18/19, the scheme year would be from 01/04/2018 to 31/03/2019, as the member was in the scheme for a full scheme year.
• The CARE Pay/Pensionable Pay should include non-contractual overtime where pension contributions have been paid.
• The CARE Pay/Pensionable Pay should still be provided in cases of reduced pay (for example, due to sickness or paid parental leave), please use the Assumed Pensionable Pay here for the relevant period. Please tell us if you have used the APP to calculate the CARE pay and confirm the reason why in the additional comments section.
• For a back dated pay award, the payment should be included within the year it was paid to the member, not when the member was due to receive it.
3. Sessional Pay/Term-Time Working – An arrangement whereby the employee works a set number of weeks per year on either a full or part time basis. Working weeks may coincide with school/university terms. As the employee is only required to work certain weeks throughout the year, the member’s pay is proportioned so that they receive a consistent monthly amount throughout the year. The member must have a sessionalised Rate of Pay for payroll to successfully calculate the member’s Final Pay. This may lead to LPF overstating member benefits if this isn’t calculated correctly on leaver forms and at year end.
- Remember to include any holiday weeks which the member is paid for, for example, a member working 40 weeks may have 5.4 weeks holiday, therefore the rate of pay should be based on 45.4 weeks (40 + 5.4).
For example; if the member is working 42 out of 52.18 weeks of the year, the sessionalised rate of pay would be calculated using the rate of pay the member would be on were they working 52.18 out of 52.18 weeks.
£20000 / 52.18 * 42 = £16098.12
£16098.12 would be the rate of the pay the member received for this period. If the member is part time this would need to be proportioned further for CARE only, (this would not be applicable for the Final Pay calculation as this is always the Full Time Equivalent).
If the member’s rate of pay were to increase during their final year, this would need to be taken into account to calculate the member’s FTE if they have final salary benefits.
£20000 from 01/08/2018 to 31/12/2018 = 153 days
£20000 / 52.18 * 42 = £16098.12
£16098.12 / 365 * 153 = £6747.98
£22000 from 01/01/2019 to 31/07/2019 = 212 days
£22000 / 52.18 * 42 = £17707.93
£17707.73 / 365 * 212 = £10285.04
£10285.04 + £6747.98 = £17033.02
This is what we would expect the members sessionalised FTE to be. This is the figure that would be used when calculating their final salary benefits.
4. Assumed Pensionable Pay (APP) – Most common in cases of sick & maternity, this is the pay the member received within the last 3 consecutive months were the member was earning their full pay, uprated to an annual amount. This APP figure is needed to calculate the amount of the enhancement to the benefits due under the LGPS. Once the annual amount has been calculated, this can be proportioned for the relevant period.
For example; the member left on 31/07/2019, the pays in the last three months were:
01/07/19 – 31/07/19 = £2000
01/06/19 – 30/06/19 = £2500
01/05/19 – 31/05/19 = £2500
The APP therefore is: £2000 + £2500 + £2500 = £7000
£7000 / 3 = £2333.33
£2333.33 * 12 = £28000
The APP should always be provided in cases of Ill-Health retirements and cases of Death in Service – even if the member was not in receipt of reduced pay.
5. Further Pay Details – to calculate pension benefits for a member, we can go back 3 years prior to the date of leaving/retirement. If a previous year’s pay is higher, then a Best of Last 3 spreadsheet should be completed by payroll for administration staff to review and confirm. This will give the member the best possible pay to use in our calculations. The spreadsheet to calculate the best of the last 3 years can be found in the Guides and Forms folder on Go Anywhere.
Where the member has suffered a drop-in pay in the last 10 years to date of leaving and they were issued with a Certificate of Protection (COP) before 1st April 2015 due to a drop-in pay, please provide the extra Final Pay details. The COP spreadsheet needs to be completed and sent along with the leaver form.
Employers should specifically state when a member has been absent for illness or maternity or has any period of unpaid leave. Dates of any of these events should be given within the additional comments section on the retiral form.
6. Other pensionable payments – It must be confirmed if the member has had any additional pensionable payments, such as pensionable overtime, night shift or uniform allowance. These should not be included within the Final Pay but should be included within the CARE pay, this often leads to the CARE pay being higher, which is why it is important for this information to be confirmed.
If there have been any deductions, for example the member was over paid, please confirm if LPF should use the figures before or after this deduction.
If member is sessional, please confirm if any sessional adjustments have been taken into account, as this may affect the CARE pay.