5.1 Meaning of Pensionable Pay
Pensionable pay is defined within the scheme Regulations and means, subject to the provisions of the regulation:
- all salary, wages, fees and other regular payments payable to a member, in respect of pensionable employment as an Officer, but does not include
- bonuses or payments made to cover expenses or overtime.
The difficulty arises with the use of the phrase other regular payments. There are a large number of different allowances paid by employers, some of which are pensionable and others which are not.
The following paragraphs may be helpful to employers, in order to make the correct decisions on whether an allowance is pensionable or not. Employers should be aware of the following points which have been listed into general related categories
5.2 Total Pensionable Pay (sometimes referred to as TSR, (Total Superannuable Remuneration)
The difficulty arises with the use of the phrase “other regular payments”. There are a large number of different allowances paid by employers, some of which are pensionable and others which are not.
The TSR figure is the yearly pensionable pay earned in the best of the last 3 years immediately before termination, counting backwards in sets of 365 paid days of pensionable employment. Periods of non-contributing employment e.g. unpaid sick leave, should be excluded from the 365 day calculation and shown separately on any pension application form.
The TSR figure is based on the best 3 consecutive years out of last 10 years immediately before termination, counting backwards in sets of 365 paid days of pensionable employment. Periods of non-contributing employment e.g. unpaid sick leave, should be excluded from the 365 day calculation and shown separately on any pension application form.
There are a number of occasions when a TPP will be required, e. g. benefit estimates and awards, transfer estimates and payments or credits, AVC quotes and purchases etc.
The TSR figure is the yearly pensionable pay earned in the 365 day period of the scheme year of pensionable employment. The scheme year runs from the 1st April to the 31st of March. Periods of non-contributing employment e.g. unpaid sick leave, should be excluded from the 365 day calculation and shown separately on any pension application form.
5.3 Earnings Cap
The earnings cap was introduced on 1 June 1989 by HMRC. New members starting on or after this date were limited on the amount of pensionable pay that contributions could be paid on.
Members falling into this category are:
- Members re-joining after 1 June 1989 following a disqualifying break of one year.
- Members who opted out taking a refund and subsequently re-joined the scheme.
- Members transferring in after 1 June 1989 from any scheme other than HSC England & Wales and Scottish Public Pensions Agency.
NB. Members who opted out of the scheme before 1 June 1989 and are reinstated following mis- selling, do not fall into this category.
Removal of Scheme Earnings Limits on which contributions can be made
1995 Section – Service up to 31 March 2008 that was subject to scheme earnings limits i.e. capped, will continue to be so. Members who were subject to the cap (and breached it) will receive separate pensions at retirement for their capped and uncapped service. The latter will be based on their final years ‘uncapped’ pensionable pay. General Dental Practitioners are also subject to a separate dental cap, Maximum Allowable Remuneration (MAR). The Department of Health agreed that dental MAR was removed for future service from 1 April 2008.
Members who have current added years’ contracts will continue to pay these contracts up to the Scheme Earnings Limits.
2008 section – From 1 April 2008, the Scheme Earnings Limit was removed for future service. The exceptions are:
- service transferred into the HSC scheme after 1 April 2008 from a scheme that participates in the Public Sector Transfer Arrangement (The Club) if the member was subject to the cap or similar provision in the previous ‘Club’ scheme.
- added years being purchased where the member was subject to the cap when the contract was taken out.
5.4 Payment of Employee/Employer Contributions to HSC Pension Service
Employers are responsible for the collection and payment to HSC Pension Service, of all HSC Pension Scheme contributions. The Pensions Act 1995 requires contributions to be paid to the Scheme within 19 days of the end of the month in which they were deducted from salary.
These time scales ensure that monies deducted for pensions are not appropriated for any other purpose and it is very important that these time scales are strictly adhered to.
If employers do not complete and forward the relevant paperwork this may mean that employee’s pension rights are being affected and the employer is acting in breach of the statutory Scheme Regulations and also Section 49 of the Pensions Act 1995.
Under Section 48 of the Pensions Act and Section 70 of the Pensions Act 2004, HSC Pension Service has a legal duty to report any ‘breaches of law’ to the Pensions Regulator.
In order to help pay for improved benefits and future scheme costs, pension contributions have increased.
Employers continue to contribute currently 16.3% – about two thirds of the cost of an individual’s pension.
From 1 April 2009 all scheme members were allocated to a contribution tier based on their pensionable pay.
Tiered contribution rates are no longer carried between employments.
A member’s contribution tier is reassessed in-year if:
- The member starts a new employment. That is, a change of employer or a new additional concurrent employment or a new job with their current employer; or
- The member’s pensionable pay changes in year for an existing employment. This excludes the effect of changes to pensionable allowances that are due to changes in duties that are not planned or are unlikely to persist for at least 12 months. Unplanned and short term fluctuations in allowances such as unsocial hours payments will not lead to a tier being reassessed.
- Employees new to the HSC will be allocated to a tier based on the whole-time equivalent salary and fixed allowances as at date of commencement.
The regulations do not allow members to be excused from paying contributions that are properly due. Care should be taken, therefore, to ensure as far as possible that arrears of contributions do not arise.
Where contributions have been under-deducted, the following action should be taken:
- Arrears during a current financial year should be collected as soon as is reasonably possible, either by a lump sum payment or by instalments over a short period.
- Arrears relating to earlier financial years will be collected by the employer after HSC Pension Service has agreed with the member that the ‘net pay’ method of deduction is acceptable. This does not include backdated scheme joiners.
If it is known that contributions will be outstanding at retirement, HSC Pension Service will deduct these contributions from benefits payable.
Prompt notification and collection of arrears prevents administrative complications from arising should the member transfer to another employer.
Overtime is defined as any hours worked in excess of the agreed standard whole-time hours for the grade. For pension purposes this is not extra hours worked by part-time staff which still falls below the standard whole-time hours for the post.
As long as they remain within the standard whole-time hours for the grade, part-time staff are pensionable on extra hours they work.
A W/T employee, whose whole-time standard hours are 37.5 hours a week, works 40 hours, i.e. 2.5 extra hours.
The extra hours are not pensionable because they are above the standard W/T hours for the post.
Part time employee contracted for 20 hours works 20 extra basic hours. This employee would be paid
5.7 Bonus and Performance Related Payments
It is the employer’s responsibility, in the first instance, to determine which payments are pensionable and which are not.
In order for employers to make this decision the following guidelines should be followed:
- employers may call the same or similar payments by different names – what one may call a bonus another may refer to as performance related pay. We therefore cannot pay too much attention to the name tag but more to the nature of the payment.
- it does not necessarily matter whether the payment is consolidated.
- the main considerations are that it must be a regular and continuing feature of the job and the member must have a reasonable expectation of at least being able to earn the payment on a regular basis (yearly is considered regular) through performance of their regular, day to day duties.
- payments which may fluctuate, are once-only payments or relate to hours above the standard whole-time hours for the post are not pensionable.
- a performance related payment which is not part of an individual’s pay package and one- off lump sum or discretionary bonus or incentive payment for the completion of a particular job is not pensionable.
- a corporate performance payment may be pensionable provided it satisfies the normal rules relating to performance related pay pensionability and provided that it is also linked to an individual’s performance as well as that of the employer e.g.: applies to Practice Staff, QUAFF payment.
- a payment that attaches solely to the performance of employers is not pensionable.
- the national arrangements relating to performance for senior/general managers provide for performance related pay, which rewards past achievement, to be paid as a percentage addition to future salary on a monthly basis and this is pensionable.
5.8 Domiciliary Consultation Fees
5.9 Honorary Appointments
An honorary appointment is NOT pensionable. However, where the individual holds concurrent employment which is pensionable employment, any distinction award relating to the honorary appointment is included in the member’s pensionable pay.
5.10 Unsocial Hours Payments
Members who work unsocial hours receive any enhanced payments for some of their hours (e.g. nurses working night shifts or weekend duties). Unsocial Hours payments are pensionable and should be recorded as such.
5.11 On-call and Stand-by Duty
Where a member is expected to be available “on-call” or “stand-by” as a feature of their work or where there is a specific rota commitment then that payment IS pensionable.
This would also include locally agreed payments for the provision of periods of emergency cover. Only the payment of the allowance is pensionable.
5.12 Additional Hours Worked (Part-Time)
A part-time member who works hours in addition to their normal working week will be pensionable for those additional hours up to the whole-time equivalent. This includes part-time members who have concurrent employments.
A P/T employee whose contractual P/T hours are 20 hours a week and whose standard WT hours are
37.5 works 23 hours, i.e. 3 extra hours.
5.13 Non Contributing Days
Contributions are still taken from salary when a member is receiving reduced pay due to sick leave. The contributions stop, however, when the member comes to the end of this period and goes onto nil pay.
Similarly, contributions also stop for other periods of unauthorised absence such as strike days.
As no contributions are being collected during such periods the 365 day period should not include this period of time and the dates will need to be extended back by the number of non-contributing days.
The member was on nil pay from 21 May to 28 May 2015.
Using the date of retirement of – 30 June 2015
The 365 days pensionable pay period in the 3 years would be:
|23 June 2014 to 20 May 2015||=||332 days|
|21 May 2015 to 28 May 2015||=||8 days non contributing|
|29 May 2015 to 30 June 2015||=||33 days|
Totalling: 365 contributing days
Previous 2 years periods would therefore be;
|23 June 2013 to 22 June 2014||=||365 days|
|23 June 2012 to 22 June 2013||=||365 days|
5.14 Step Down Voluntary Protected Pay
Step Down – Voluntary protection is only available to members of the 1995 Section
Members contributing to the final salary arrangement in the 1995 section of the scheme on or after 1 April 2008 can request protection of their pensionable pay figure for the purposes of calculating subsequent benefits, provided:
- the member has reached the age of 50.
- the member has at least 2 years’ pensionable service.
- the member’s pensionable pay (whole-time equivalent pay in the case of part-time members) has reduced by at least 10%.
- the reduction in pay is for at least 12 months.
- the member applies in writing for such protection within 15 months of the reduction in pensionable pay.
- for a period of at least 12 months (ending immediately before the reduction the application is in respect of) the member’s pensionable pay had not been subject to any other reduction.
- the member has not already protected their pensionable pay through use of this provision.
The permitted minimum reduction in pensionable pay means 10% of the member’s whole-time equivalent basic pensionable pay in the 12 months up to the effective date of the protected pay.
An application for voluntary protected pay is a valid application if all the following apply:
- it is made by an eligible member.
- it is in respect of service under the final salary arrangement of the scheme only.
- the member’s notional whole time equivalent basic pensionable pay has decreased by at least the permitted minimum.
- the decrease in pensionable pay is from an amount of pensionable pay that was in effect for at least 12 months immediately before the decrease.
- it is made, in writing, to the scheme administrator within 15 months of the member’s pensionable pay being reduced.
- the reduction in pensionable pay referred to above remains greater than or equal to the permitted minimum for at least 12 months.
- there has been no previous valid application.
Members of the 1995 section will have access to new index linked voluntary pay protection arrangements on step down, based on the current pension protection provisions after compulsory step down. Voluntary protection of final pensionable pay can take effect at any age after the members minimum pension age (MPA). Voluntary protected pay is intended primarily to operate when a member takes on a less demanding post in the run up to retirement.
Members may make one election to preserve their benefits up to the date their pay (whole time comparable pay for part-time membership) reduces. Employers will be asked to certify a defined criterion. Further details are available on our website.
Protection of Pay through no fault of the member
A member, who has at least two years qualifying service and suffers a reduction in earnings through no fault of their own, may apply to protect their pension benefits.
Examples of accepted reasons for protection of pay are:
- A change in the nature of the duties performed, for example due to ill health
- A move to a lower paid post because of pending or actual redundancy.
- Being transferred to other employment with an employer.
We can consider protecting pension benefits when redundancy results in a member receiving a lower rate of pensionable pay within 12 months of redundancy. As pension benefits are automatically deferred after a break of 12 months, a member would not need to apply for protection if returning to HSC pensionable employment 12 months or more after being made redundant.
5.15 Membership Limits
Scheme regulations have been extended to include Death in Service cover where contributions have ceased because maximum membership has been achieved.
The amendment has a retrospective effect from 1 April 1995 and covers members in both the 1995 and 2008 sections of the regulations.
The cover includes:
Death Lump sum
- Survivor partner benefits
- Child allowance
A member may not earn, or pay contributions, on more than 40 years reckonable membership before attaining age 60 (55 for special classes and Mental Health Officers). At age 65 this limit is 45 years. Restriction to scheme maximum of 45 years.
MHOs who achieve the maximum membership of 45 years before reaching age 60 must continue to contribute until age 60, unless they opt out of the scheme.
Where maximum membership has been achieved and the member is aged over 65 (60 for special classes and MHOs), employers must ensure that cases are identified in good time so that contributions can be ceased.
As soon as contributions cease, employers must inform the scheme member that benefits will be based on membership and pay up to the date of cessation of contributions and not the date of termination of employment. Pensions Increase (PI) is added to benefits if applicable at retirement.
The lifting of the service limits took effect service from 1 April 2008. The limit of 45 years will include the years credited for any transferred in service.
The limit of 40 yrs service before age 60 is removed for service accruing on or after 1 April 2008.
The overall scheme restriction of 45 yrs maximum membership remains.
Where there is difficulty in determining the precise date when contributions should cease, a written request should be sent to HSC Pension Service to supply a full membership check and confirm the date.
5.16 Retrospective Pay Increases
Where retirement forms have already been sent to HSC Pension Service, any changes in pensionable pay must be notified by the employer to HSC Pension Service immediately so that revision action can be taken if appropriate.
5.17 Sick Leave – Reduction of Pensionable Pay
Statutory Sick Pay (SSP) is pensionable pay on which pension contributions are payable. It should be included as pensionable pay in the total pensionable pay (TSR) for benefit purposes.
However, it should never be included as deemed pay.
Where a member’s earnings reduce during the 8 weeks prior to their period of incapacity for work, e.g. moving from whole time to part time, their earnings during sick leave may be less than the SSP payable. In such a case, pension contributions will be based on SSP. and the TSR will not be uprated for pension benefit purposes.
5.17.1 Employer’s Statutory Sick Pay – Full Rate Sick Pay
When a member becomes entitled to sick pay at full rate, the SSP is subsumed into sick pay and both member and employer pay contributions on full rate of pay.
5.17.2 Employer’s Statutory Sick Pay – Half Rate Sick Pay
When a member becomes entitled to sick pay at half rate, the SSP is paid in addition to this except when SSP is more than half pay. In which case, half Occupational Sick Pay will be adjusted to ensure that this element, when added to SSP, does not exceed full pay.
Employer’s contributions are based on unreduced pay and member’s contributions on the pay plus SSP received, providing the total does not exceed full pay.
5.17.3 Employer’s Statutory Sick Pay – Unpaid Sick Leave
When a member’s entitlement to paid sick leave has expired, although still entitled to receive SSP, the latter is treated as pensionable remuneration and contributions should be paid on SSP. Employer contributions are based on the unreduced pay. Reckonable service is extended for the period during which SSP is in payment.
5.18 Maternity Pay and Leave
5.18.1 Members who do not intend to return to work
A member who goes on maternity leave and does not intend to return to work pays contributions on Occupational Maternity Pay (OMP), if applicable. Employee contributions are based on the amount of maternity pay actually received. Employer contributions are based on the member’s salary immediately prior to the period of maternity leave.
Where an employee is not entitled to OMP but has an entitlement to Statutory Maternity Pay (SMP), employee and employer contributions cease on the last day of employment.
5.18.2 Members who intend to return to work
A member who intends to return to work following maternity leave is pensionable, regardless of whether the leave is paid or unpaid. Employee contributions, during paid maternity leave, are deducted on the amount of pay actually received. During unpaid maternity leave, contributions are based on the amount the member was receiving immediately before the unpaid maternity leave commenced. Employer’s contributions during paid and unpaid maternity leave are based on the member’s salary immediately prior to the period of maternity leave. The member’s salary on which employer contributions are based is recalculated for any subsequent pay award.
A member may elect to receive payment of OMP apportioned over the whole period of the maternity leave. Employers should still calculate and deduct employee contributions on the basis of the underlying entitlement and dates for which the payments were due.
During a period of unpaid maternity leave, employee contributions will be calculated on the rate last paid i.e. SMP.
Where an employee is not entitled to OMP but has an entitlement to Statutory Maternity Pay (SMP), employee contributions are payable on SMP. Employer contributions are based on the member’s salary immediately prior to the period of maternity leave.
Any arrears of pension contributions can be collected when the member returns to work.
Added years contributions will continue to be payable on the normal salary before maternity leave started (the rate in payment immediately before maternity pay started).
Additional Pension contributions will continue to be payable at the agreed monthly rate and should be collected by lump sum on return to work.
5.18.3 Member changes option
A member who changes her mind and decides not to return to work shall have their contributions re- assessed based on the “not returning to work” paragraph above.
Keep in touch days
An employee who chooses to have “Keep in Touch Days” should have contributions deducted on the pay actually received. Employer’s contributions are based on the member’s normal salary
Any arrears of pension contributions can be collected when the member returns to work.
Employers should make members aware that contributions are payable both on paid and unpaid maternity leave when they make a statement of intention to return to work.
Where contributions have been correctly paid on any part of maternity leave, (whether paid or unpaid leave), they should not be refunded to the member.
To avoid an arrears situation, membership should extend to the last day for which contributions have been paid and that date recorded as the date of termination. Employers should advise HSC Pension Service of any adjustments.
5.19 Paternity Leave, Parental Leave, Adoption Leave
Where the leave is paid the employee’s contributions are based on the pay actually received. Employer’s contributions are based on the member’s normal salary.
Where the leave is unpaid the employee’s contributions are based on the rate of pay in force immediately before the period of unpaid leave. Employer’s contributions continue to be based on the member’s normal salary.
5.20 Annual Leave
Pensionable service is extended to include payment of untaken annual leave on termination of employment. Where a member takes up pensionable employment with another HSC employer during the time covered by the untaken annual leave, pensionable service with the new employer will commence following the period of untaken annual leave. This is to ensure that there is no overlap in pensionable service and that contributions are not paid twice for the same period.
5.20.1 Paid Notice
Paid notice should not be confused with payments made in lieu of notice and employers are advised to work on the following basis:
- the period reckons as contributing membership;
- pension contributions should be deducted on the full amount.
5.21 Leave of Absence other than Sickness or Injury
5.22 Notifying HSC Pension Service
HSC Pension Service relies entirely on the employer to provide TSR information both promptly and accurately either on request or automatically when completing benefit application forms.
5.23 General Guide for completion of HSC Pension Service retirement application forms
Summary of information required on form AW6
Part 1 – 9 to be completed by the member
Part 1 Information required to allow HSC Pension Scheme to update members details.
Part 2 Details of spouse/civil partner for dependant benefit purposes are required
Part 3 Information required if member wishes to allocate part of their pension
Part 4 Details of any Additional Voluntary Contributions are required
Part 5 Details must be entered about Lifetime Allowances. Further guidance is available on HMRCs website www.hmrc.gov.uk.
Part 6 Members who leave the scheme can choose to take an additional lump sum by giving up part of their pension. This is known as making a lump sum choice or commutation of pension. The lump sum taken must not exceed the maximum allowed under the Finance Act (25% tax free lump sum allowed). This must not reduce the member’s pension to such a level that it is insufficient to meet the liability to pay a minimum amount in respect of membership before 1997 that was contracted out of the State Pension Scheme (GMP). Members will receive £12 of lump sum for every £1 of pension they give up. Members wishing to take up this option should complete this part. We will contact the member regarding about their scope for commutation.
Part 7 Details are required if the member intends continuing or returning to HSC employment after retirement. This could affect the payment of the member’s pension and further information on the effect of re-employment on a member’s pension can be found on our website www.hscpensions.hscni.net
Part 8 Bank details of the account to which payments are to be made is required.
Part 9 Declaration must be signed and dated by the applicant.
Sections to be completed by the employer
Part 10 Member details and type of retirement. Please ensure that the details provided by the member in Part 1 are correct. You must also confirm the member’s date of birth.
Part 11 Pay details,
- 1995 Section – whole time equivalent final pay figures (please provide rates and total pensionable pay for the last four years for final pay control assessment. The best of the last three years figure will be used for pension calculation purposes)
- 2008 Section – give reckonable pay for all relevant years (from 1April 2008 to be the earliest).
- 2015 Scheme – Actual Pensionable Pay required from:
1. Date of joining the 2015 scheme to the 31 March of the following year.
2. The beginning of each subsequent scheme year 01 April to 31 March
3. 01 April to date of retirement in final year of employment
Part 12 Certification relating to relevant documentation required and authorised signatories.
Action by the Employer
You should agree the date of retirement with the member and forward the form to the employee for completion. This should be done at least four months prior to the intended date of retirement.
You should make a final check of the completed form before forwarding all information to us. Ideally, the form should be forwarded to HSC Pension Service via PSSC three months before the intended date of retirement to enable us to process the application and make the necessary payment arrangements.