EPN154 - Increase in the Pensions Earnings Cap 2007-8

Date posted: 01/12/2006

Audience: HR Managers who deal with high earners & Payroll managers

Action: Note the contents and apply the new limit.

Timing: The change is effective from 6 April 2007

Background

Prior to 6 April 2006, HM Revenue & Customs (HMRC) limited the amount of salary that could be used in calculating the pensionable pay of a civil servant who, on or after 1 June 1989, joined the Civil Service pension (CSP) arrangements. The limit was referred to as the earnings cap. Although HMRC will no longer limit the benefits we can pay for the new financial year, the rules of the PCSPS will continue to restrict benefits in this way. We will calculate the cap using the same method as was previously used by HMRC.

Earnings Cap level for 2007-8

6 April 2007 – 5 April 2008 £112,800

Who does the earnings cap apply to?

The earnings cap applies to all civil servants who joined, or returned to, the Civil Service on or after 1 June 1989, except those listed below.

• Members who joined a By-analogy scheme before June 1989 and who transferred to PCSPS from that scheme without a break in service.
• Members who were staff of NHS Trusts and Health Authorities who joined the Civil Service pension schemes on transfer to the Department of Health (or its equivalent in Scotland and Wales), and were employed by the NHS before June 1989.
• Members who joined the scheme before June 1989 and went on secondment, or a posting, to an employer and were fully expecting to return to the Civil Service, are not subject to the earning cap provided they return without a break in service.
• Members who joined the scheme before June 1989 and have returned after taking maternity leave or adoption leave providing they rejoined the Civil Service pension arrangements within one month of returning to work.
• Members who joined the scheme before June 1989 and who have returned after taking unpaid leave and have rejoined the CSP arrangements within one month of returning to work.
• Members who joined the scheme before June 1989 and have returned after a break in service of one month or less.
• When a member joins the CSP arrangements as part of a TUPE transfer you must not apply the cap if they were uncapped immediately before the transfer.
• When a member brings in a transfer value from another pension scheme the service credit they receive may be uncapped. Your APAC can advise whether a particular transfer value is capped and what implications this has for the member.

Employer and Employee contributions

Where a member is subject to the earnings cap their contributions must only be calculated on their salary below the cap. The same applies to employer contributions. You should advise the member that the earnings cap will apply to them. It is mentioned in the Starter Pack booklet ‘Your pension, your choice’, but not in any detail as it applies to so few members.

Special cases

The cap applies proportionately when actual part-time pay is used in calculating, for example, death benefit.

For example, a member earns £90,000 for a 3 day week. The full time equivalent salary is £150,000, which is clearly above the cap for full time pay. The cap applies proportionately to the part time pay and so in this case you should treat the member as if the cap were:

£112,800 x 3 ÷ 5 = £67,680

All pay in excess of this level should be disregarded for member contributions and ASLCs.

Flexibilities for topping up the pensions of members that are capped.

Section 3.4 of the Employers’ Pension Guide (EPG) gives details of the pension flexibilities that are available to assist with the recruitment and retention of staff who are members of the CSP arrangements. These flexibilities include those that are designed particularly for new members being recruited on a salary that is over the earnings cap. They are subject to CSPD approval. If you are recruiting someone on a salary in excess of the earnings cap and want to discuss pension options you may wish to offer, please contact the employer helpdesk in the first instance

Reference

This document replaces EPN140

Contacts:

Enquiries about content, distribution or to receive in a different format

employerhelpdesk@cabinet-office.x.gsi.gov.uk
01256 846414
Employer Helpdesk
Civil Service Pensions
Grosvenor House
Basing View
Basingstoke
RG21 4HG