CARE pay and assumed pensionable pay

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Definition of Pensionable Pay

Pensionable Pay is the total of all the salary, wages, fees, and other payments paid to the employee, and any benefit specified in the employee’s contract of employment as being a pensionable emolument.

The meaning of Pensionable Pay is set out in Regulation 20 of the LGPS Regulations 2013.

It does not include:

  • Any sum which has not had income tax liability determined on it
  • Any travelling, subsistence or other allowance paid in respect of expenses incurred in relation to the employment
  • Any payment in consideration of loss of holidays
  • Any payment in lieu of notice to terminate a contract of employment
  • Any payment as an inducement not to terminate employment before the payment is made
  • Any amount treated as the money value to the employee of the provision of a motor vehicle or any amount paid in lieu of such provision
  • Any payment in consideration of loss of future pensionable payments or benefits
  • Any award of compensation (excluding any sum representing arrears of pay) for the purpose of achieving equal pay in relation to other employees
  • Any payment made by the Scheme employer to a member on reserve forces service leave
  • Returning officer or acting returning officer fees other than fees paid in respect of Local Government elections, elections for the National Assembly for Wales, Parliamentary elections, or European Parliamentary elections.

The definition of pensionable pay is essentially the same in the 2008 regulations save that non-contractual overtime is excluded when calculating final pay.

Additional contributions to provide Added Years should not be taken on overtime as they fall under the old definition of pay.

Benefits Accrued in the 2014 scheme

Pensionable pay is the key element for the calculation of benefits under the 2014 scheme. The phrase ‘CARE’ stands for Career Average Revalued Earnings – which means benefits are based on the earnings and accrual rate.

In the LGPS, each scheme year the member will accrue benefits based on the accrual rate (1/49th in the Main scheme or 1/98th in the 50:50 scheme) and the pensionable pay earned in that year.

The scheme year runs from 1st April to 31st March, and on the 1st April immediately after the year end all the CARE benefits accrued to date will be revalued in line with Treasury Orders, which are in line with the Consumer Price Index (CPI).

Assumed Pensionable Pay

There are some circumstances where you must deem pensionable pay.

Regulation 21 of the 2013 regulations cover the circumstances in which the employer will deem an Assumed Pensionable Pay (APP).

This is when a member of the scheme receives reduced pay for the following reasons:

  • The member is on sick leave or injury leave and is receiving reduced contractual or nil pay
  • The member is on child related leave (e.g. paid maternity/adoption leave, ordinary maternity/adoption leave, paid shared parental leave or paternity leave), where the pay is lower than the APP amount
  • The member is absent on reserve forces special leave (unless subject to another occupational pension scheme)

In these circumstances, you should treat the employee as having received APP for the period of reduced pay (APP replaces the pay received).

APP is calculated as an annual rate based on the average of the three months prior to the pay period in which reduced pay was received, uprated to a year.

Any one-off lump sum received in that period is deducted. Any lump sum received in the last year can be added to the APP figure where you deem it likely to have been received again during the period APP will be in effect.

You can increase the value of APP if you feel it is materially lower than that calculated. If the member is paid other than monthly, the average of 12 weeks’ pay is used rather than 3 months.

Employee contributions are taken on the actual pay the member receives, not the APP.  Employer contributions are taken on the APP; you should, therefore, report APP rather than the actual pay received for that period.

Example 1:

Member goes onto a half pay due to sickness on the 13/04/21 to 31/05/21.

The pay received for April and May 2021 is:

  • April 2021  = £980  
    (£560 full pay to 1 - 12 April and £420 half pay from 13 – 30 April)
  • May 2021  = £700

The actual pay received between 13/04/21 to 31/05/21 is therefore £420 + £700 = £1,120.00

The assumed pensionable pay is calculated using the average pay received from January to March 2021:

  • January 2021= £1,200
  • February 2021  = £1,400
  • March 2021  = £1,400

The APP is therefore £4,000 / 3 x 12 = £1,333.33 per month or £16,000 annually

The APP for the period 13/04/21 to 31/05/21 is 1 + (18/30) /12 x £16,000 = £2,133.33

The APP replaces the reduced pay that is received for pension purposes.

Employee contributions are taken on the actual pay received of £1,120.00 and the employer contributions are taken on the APP figure of £2,133.33.

You should, therefore, report APP rather than the actual pay received for that period.

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