Employer bulletin

Bulletin - February 2020

Employer bulletin header

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 employer.pensions@edinburgh.gov.uk if you’d like to share your thoughts.                   

                                                                                                           

IN THIS ISSUE

ACTION:
 Employer discretions policy statement
 Employer queries
 Full-time equivalent final pay (leap year)
 McCloud ruling 

UPDATE:
 Cessation valuations
 Audit Scotland update -IAS19/FRS102 reporting
 Member estimate requests 

TELL YOUR MEMBERS:
 Voluntary retirement estimates and document upload

FOR ACTION

Employer discretions policy statement
 
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.
 
Many thanks to those employers who have completed a policy statement and we would like to remind you that you are required to publish your policy to your members. You should also keep your policy under review and send us a revised copy should any of your discretions change.
If you have not already submitted a your policy statement, please do so as a matter of urgency or let us know if there is going to be a delay.
Please contact Mark if you have any queries.
 
Employer queries
To reduce the number of queries sent to employers regarding leavers and retiral forms, we have set a monetary limit for differences in member contributions, full time equivalent final pay and actual pensionable pay (CARE pay).
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

We will also now highlight retiral queries in red for urgent attention.

More information and guidance on how to calculate full-time equivalent final pay and CARE pay is shown at the end of this bulletin.
 
Full-time equivalent final pay (leap year)
As 2020 is a leap year, a slight adjustment is required when calculating a full-time equivalent final pay. For example, if you are providing a full-time equivalent final pay for a member who left on 31 March 2020, the final pay period would be from 2 April 2019 to 31 March 2020 which would equate to 365 days taking into account the 29 February.
 
Please contact Mark if you have any queries.
 
McCloud ruling
Employers will be aware that the Court of Appeal found transitional protections introduced as part of public sector pension reform were unlawful on the grounds of age discrimination.  Although this case concerned the firefighters pension scheme, the Chief Secretary to the Treasury announced that the principles would apply to all public service pension schemes.  Some form of remedy will be required and while it’s not known the exact form this will take, or when this will be introduced, it’s likely that the remedy will involve an extension of the underpin.
So that this can be put in place, a full history of part-time hours and service break information from 1 April 2015 will be required.  We therefore recommend that all employers maintain a record of this information for members.  We will keep employers informed of any further updates.


UPDATE

Cessation valuations
When an employer leaves the Fund, or their admission agreement is otherwise terminated, we will instruct the Fund’s Actuary to carry out a valuation of that employer’s liabilities (a ‘cessation valuation’).
The Actuary is unable to carry out cessation valuations for a future date because:
  • 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
The Scheme Actuary would not wish to make an allowance for anything in the calculations that is an estimate of the future (e.g. adding on expected future benefit accrual) as it will potentially imply to the reader that the calculations are more “final” than they actually are. Ultimately, any calculation carried out in advance of the cessation date can only ever be considered an estimate.’
 
While employers can request indicative cessation valuations, a final cessation valuation must be calculated as at the date the employer leaves the fund.
 
Please note that we will provide all employers with an indicative cessation valuation as at 31 March 2020 when we issue draft valuation results later this year.

Audit Scotland update – IAS19/FRS102 reporting
In 2018/19 authorities were advised to consider whether the McCloud and Sargeant judgements would have a material impact and, if so, to include the estimated impact in IAS19 and FRS102 liabilities. Although these rulings were concerned with judges and uniformed police pension schemes, the Chief Secretary to the Treasury announced on 15 July 2019 that the rulings would apply to all public service pension schemes.
 
The ultimate remedy is unlikely to be finalised in the near future, resulting in significant uncertainty for the 2019/20 financial statements. The CIPFA Pensions Panel is discussing a briefing statement on 20 January intended to support consistency of reporting. This is likely to recommend that authorities commission IAS19 and FRS102 valuations to take account of the judgements to restore the pension rights of scheme members who fell outside the transitional arrangements at 1 April 2015.
The Scheme Actuary’s default approach when providing IAS19 and FRS102 reports will be to include an estimated cost of the impact of the judgements in the financial statements. Employers will be given the option to opt out of the default approach but should seek guidance from your auditors in the first instance.
Employers will also be given the option have the impact of GMP equalisation on an employer’s liabilities included in the reports.
More information on this years disclosures, including costs, timetables and options will be issued to our relevant employer contacts shortly.  
  
Member estimate requests
Members can run their own voluntary retirement estimates using the benefit projectors on our My Pension Online service.
Any requests for estimates where retirement requires an employer decision must be made by the employer rather than the member. This includes:
  • flexible retirement
  • Ill-health retirement
  • redundancy or efficiency retirement


TELL YOUR MEMBERS

Voluntary retirement estimates and document upload
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. 
 

CONTACT US

Contact details for employers     
Mark Smith: 0131 529 4642
George Kirk: 0131 529 4652
e-mail: employer.pensions@edinburgh.gov.uk
i-Connect e-mail: sarah.reid@edinburgh.gov.uk
 
Member related enquiries
Carole Thomson: 0131 529 4662
e-mail: carole.thomson@edinburgh.gov.uk
Yvonne Archibald: 0131 529 4620
e-mail: yvonne.archibald@edinburgh.gov.uk
 
Contact details for members 
Members pension helpline: 0131 529 4638 
e-mail: pensions@edinburgh.gov.uk

Do you have feedback for us? We’d love to hear from you, so please send your thoughts to employer.pensions@edinburgh.gov.uk
 
 


FINAL Pay

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.