How to calculate final pay
Contents
- Full Time Members
- Regulation 10 Protection
- Certificate of Protection
- Part Time Members
- Term Time Members
- Variable Time Members
- Fee Paid Members
- Relevant Pay Period
- Less Than One Year
- Absences
- Leap Years
- How the Final Pay information you provide is used
Full Time Members
Final pensionable pay is based on either the pay due for the member's final year of scheme membership on which they paid contributions or, if it's higher, one of the previous 2 years.
This includes: their normal pay, contractual shift allowance, bonus, contractual overtime (but not non-contractual overtime), Maternity Pay, Paternity Pay, Adoption Pay, Shared Parental Pay, any other taxable benefit specified in their contract as being pensionable.
If their pay in the final year was reduced because of sickness or relevant child related leave, Final Pay is the pay they would have received had they not been on sick leave or relevant child related leave.
No sum may be taken into account in calculating Final pensionable pay unless income tax liability has been determined on it.
The meaning of Pensionable Pay is set out in Regulation 4 of the Benefit Regulations 2007.
Example 1: Member retired 31 August 2020
Rates of Pensionable Pay earned over the last three years (using the 2008 Scheme definition) were:
- 1 September 2017 £15,000 pa
- 1 April 2018 £15,600 pa
- 1 April 2019 £16,440 pa
- 1 April 2020 £17,400 pa
Final Year
| Date | Pay | Total |
|---|---|---|
| 1 September 2019 – 31 March 2020 | £16,440/12 x 7 months | = £9,590 |
| 1 April 2020 – 31 August 2020 | £17,400/12 x 5 months | = £7,250 |
| = £16,840 pa |
Year - 1
| Date | Pay | Total |
|---|---|---|
| 1 September 2018 – 31 March 2019 | £15,600/12 x 7 months | = £9,100 |
| 1 April 2019 – 31 August 2019 | £16,440/12 x 5 months | = £6,850 |
| = £15,950 pa |
Year - 2
| Date | Pay | Total |
|---|---|---|
| 1 September 2017 – 31 March 2018 | £15,000/12 x 7 months | = £8,750 |
| 1 April 2018 – 31 August 2018 | £15,600/12 x 5 months | = £6,500 |
| = £15,250 pa |
The best of the last three years final pay is the final year = £16,840 pa
Example 2: Member retired 10 December 2020
Rates of Pensionable Pay earned over the last three years (using the 2008 Scheme definition) were:
- 1 April 2017 £15,192 pa
- 1 April 2018 £17,644 pa
- 1 April 2019 £16,395 pa
- 1 April 2020 £17,411 pa
Bonus payment received 1 May 2020 = £200
Final Year
| Date | Pay | Total |
|---|---|---|
| 11 Dec 2019 – 31 Mar 2020 | £16,395/12 x (3 months + 21/31 days) | = £5,024.27 |
| 1 Apr 2020 – 10 Dec 2020 | £17,411/12 x (8 months + 10/31 days) | = £12,075.37 |
| Plus Bonus Payment: £200.00 = £17,299.64 pa |
Year - 1
| Date | Pay | Total |
|---|---|---|
| 11 Dec 2018 – 31 Mar 2019 | £17,644/12 x (3 months + 21/31 days) | = £5,407.03 |
| 1 Apr 2019 – 10 Dec 2019 | £16,395/12 x (8 months + 10/31 days) | = £11,370.73 |
| = £16,777.76 pa |
Year - 2
| Date | Pay | Total |
|---|---|---|
| 11 Dec 2017 – 31 Mar 2018 | £15,192/12 x (3 months + 21/31 days) | = £4,655.61 |
| 1 Apr 2018 – 10 Dec 2018 | £17,644/12 x (8 months + 10/31 days) | = £12,236.97 |
| = £16,892.58 pa |
The best of the last three years final pay is the final year = £17,299.64 pa
Regulation 10 Protection
If the member's pay is reduced or their pay is restricted in their last 10 years of continuous employment because:
- they are downgraded or moved to a job with less responsibility, or
- as a result of a job evaluation/equal pay exercise, or
- as a change to what is specified as pensionable pay in their contract (using the 2008 Scheme definition), or
- their pay is restricted for some other reason,
the member may have the option to have their final pay calculated as the average of any 3 consecutive years' pay in the last 13 years (ending on a 31 March).
Please note that the member must have been in the LGPS for the whole of the year from 1 April to 31 March for that year to be considered in the calculation.
If the member is eligible for this protection, we will request that you provide the member's final pay for each year (to 31 March) for this period.
This protection does not apply if the reason for the reduction was as a result of flexible retirement.
Certificate of Protection
Where the member's pay is reduced or increases to their pay are restricted prior to 1 April 2008, a Certificate of Protection may have been issued, which allows the best single year's final pay to be used within the last 5 years of membership, or the average of any 3 consecutive years' pay in the last 13 years (ending on the anniversary of their date of leaving).
For the Certificate of Protection to apply, the member must leave the scheme within 10 years of the reduction or restriction. As the member would have had to leave by 1 April 2018 for the conditions of the Certificate of Protection to apply, they are no longer applicable.
Part Time Members
If the member was part-time for all or part of their final year, then the whole-time pay that the member would have received if they had worked whole-time is used.
If an additional payment paid in the final pay period would have been greater if the member had worked full time, then the Full Time Equivalent amount would be used in the calculation.
Example 1:
Member leaves 31 December 2020 and worked 20 hours per week out of a possible 37.
The member rates of part-time pensionable pay (using the 2008 Scheme definition) were as follows:
- 1 April 2019= £8,000 pa
- 1 April 2020 = £8,600 pa
Bonus payment received 1 May 2020 of £200. This would have been £370 if the member had worked full time.
Honorarium received 30 November 2020 of £100. This would have remained £100 if the member had worked full time.
| Date | Pay | Total |
|---|---|---|
| 1 Jan 2020 to 31 Mar 2020 | £8,000/12 x 3 months = £2,000 x 37/20 hours | = £3,700.00 |
| 1 Apr 2020 to 31 Dec 2020 | £8,600/12 x 9 months = £6,450 x 37/20 hours | = £11,932.50 |
Plus FTE Bonus Payment = £750.00 |
Example 2:
Member leaves 31 December 2020 and worked 20 hours per week out of a possible 37 until 1 July 2020, where the hours were reduced to 16 hours per week.
The member rates of part-time pensionable pay (using the 2008 Scheme definition) were as follows:
- 1 April 2019 = £8,000 pa
- 1 April 2020 = £8,600 pa
- 1 July 2020 = £6,880 pa
| Date | Pay | Total |
|---|---|---|
| 1 Jan 2020 to 31 Mar 2020 | £8,000/12 x 3 months = £2,000 x 37/20 hours | = £3,700.00 |
| 1 Apr 2020 to 30 Jun 2020 | £8,600/12 x 3 months = £2,150 x 37/20 hours | = £3,977.50 |
| 1 Jul 2020 to 31 Dec 2020 | £6,880/12 x 6 months = £3,440 x 37/16 hours | = £7,955.00 |
| = £15,632.50 pa |
Term Time Members
If a member works term time only, even if they work full time hours for each of the weeks that they work, they are still considered part time and the pensionable pay earned would be grossed up to full time.
Example:
Member leaves 31 December 2020 and worked 20 hours per week out of a possible 37 until 1 July 2020, where the hours were reduced to 16 hours per week out of a possible 37. The member worked 44 weeks per year until 1 September 2020, when the weeks worked increased to 45 per year.
The member rates of part-time pensionable pay (using the 2008 Scheme definition) were as follows:
- 1 April 2019 = £6,769.23 pa
- 1 April 2020 = £7,276.92 pa
- 1 July 2020 = £5,821.54 pa
- 1 September 2020= £5,953.85 pa
| Date | Pay | Total |
|---|---|---|
1 Jan 2020 to 31 Mar 2020 | £6,769.23/12 x 3 months = £1,692.31 x 37/20 hours x 52/44 weeks | = £3,700.00 |
1 Apr 2020 to 30 Jun 2020 | £7,276.92/12 x 3 months = £1,819.23 x 37/20 hours x 52/44 weeks | = £3,977.50 |
1 Jul 2020 to 31 Aug 2020 | £5,821.54/12 x 2 months = £970.26 x 37/16 hours x 52/44 weeks | = £2,651.68 |
1 Sep 2020 to 31 Dec 2020 | £5,953.85/12 x 4 months = £1,984.62 x 37/16 hours x 52/45 weeks | = £5,303.35 |
| = £15,632.53 pa |
Variable Time Members
Where a member does not have set working hours each week, so their hours vary from week to week, the final pay is calculated by taking their hourly pay rate and grossing this up to full time hours.
Fee Paid Members
Where a variable-time employee's pensionable pay consists of or includes fees, for example a Returning Officer, the employee's final pay is calculated as the total of:
- The fees for the final pay period; and
- Any pensionable pay, other than fees, for the final pay period.
We will also need the final pay figures for the previous two years ending in the leave date. We will take the figures and average the last three consecutive years to determine the final pay used in the calculation.
The employer may consent to the member having their final pay calculated as the average of all such fees for any three consecutive years ending 31st March within the period of ten years ending with the last day the member was an active member. Please refer to the Regulation 11 Protection.
Relevant Pay Period
Where pay is paid in arrears, for example a late payment award or bonus payment, it needs to be counted for Final Pay purposes in the year during which it should have been paid, if that year is earlier than the one in which it was paid.
Extra payments in addition to the basic salary are variable pension payments (under the 2008 LGPS definition).
Example:
Member leaves on 31 December 2020. A lump sum Performance Related payment of £1,000 was made on the 1 April 2020 and relates to a period from 1 April 2019 to 31 March 2020.
As part of the period for which the payment relates was outside the Final Pay period (1 Jan 2020 to 31 Dec 2020) only the part of this payment relating to the final year should be included in the final pay calculation.
1 January 2020 to 31 March 2020 = £1,000/12 x 3 months = £250.00
This amount should be added to the final pay calculated for the period 1 Jan 2020 to 31 Dec 2020, to give the total final pay.
Less Than One Year
If the final year is a period of membership of less than 1 year (including unpaid breaks) then the period needs to be uprated to an equivalent 365 days.
The final pay during that period is divided by the number of days of membership and multiplied by 365.
Example:
The period of membership is 1 August 2020 to 10 February 2021 = 194 days
Pensionable Pay during that period is £15,000.
The Final Pay is calculated as £15,000 / 194 x 365 = £28,221.65
Absences
If an employee has an unpaid period of service during the final year and does not elect to replace the lost pension via an APC (within the first 30 days of returning to work), then the final pay is calculated as above 'Less Than One Year.'
Example:
Member leaves 31 December 2020 and has an unpaid absence between 1 September to 10 September 2020 (10 days).
The period of membership is:
- 1 January 2020 to 31 August 2020 = 243 days
- 11 September 2020 to 31 December 2020 = 112 days
Total = 355 days
Pensionable Pay earned during that period is £25,000.
The Final Pay is calculated as £25,000 / 355 x 365 = £25,704.23.
Leap Years
As the final pensionable pay is normally based on the member's final year of scheme membership, this can be either 365 or 366 days, depending on whether it is a leap year.
If the final pay period does not start or end in a February that falls in a leap year, the calculation remains unchanged, as February will be counted as one month regardless of whether that is 28 or 29 days.
If the final pay period starts or ends in a February that falls in a leap year, the divisor used must reflect the number of days in the month, either 28 or 29.
Example 1:
Member leaves 15 February 2020, earning £12,000 p.a.
| Date | Pay | Total |
|---|---|---|
| 16 Feb 2019 – 28 Feb 2019 | £12,000/12 x 13/28 days | = £464.29 |
| 1 Mar 2019 – 31 Jan 2020 | £12,000/12 x 11 months | = £11,000 |
| 1 Feb 2020 – 15 Feb 2020 | £12,000/12 x 15/29 days | = £517.24 |
| = £11,981.53 pa |
Example 2:
Member leaves 15 February 2021, earning £12,000 p.a.
| Date | Pay | Total |
|---|---|---|
| 16 Feb 2020 – 29 Feb 2020 | £12,000/12 x 14/29 days | = £482.76 |
| 1 Mar 2020 – 31 Jan 2021 | £12,000/12 x 11 months | = £11,000 |
| 1 Feb 2021 – 15 Feb 2021 | £12,000/12 x 15/28 days | = £535.71 |
| = £12,018.47 pa |
How the Final Pay information you provide is used
We take the Final Pay that you provide and multiply it by the membership in years and days accrued by the member before 1 April 2014, then divide by an accrual rate to give the annual pension amount.
For membership to 31/3/2008, the accrual rate was 1/80 pension with 3/80 lump sum.
For membership from 1/4/2008 to 31/3/2014, the accrual rate was 1/60 pension with no automatic lump sum.
If the member worked part time before 1 April 2014, their membership is adjusted pro-rata to the number of hours that they worked, which is why the Final Pay used is the Full Time Equivalent.
Example:
For someone who has been a member for 6 years from 1 April 2008 and has a final salary of £25,000, the calculation would be:
£25,000 x 6 years x 1/60 = £2,500 per year.