EPN195 - Retrospective pay awards and late payment of salary – calculation of ASLCs

Date posted: 01/11/2007

Audience:

• Finance Directors and Managers
• Payroll managers
• HR Managers with specific responsibility for pay negotiations

Action: Note the action for calculating ASLCs when you are dealing with retrospective pay awards and late payments of salary. Inform your payroll of the changes

Timing: Immediate

Background

1. EPN144 told you what actions you needed to take to calculate ASLCs (employer contributions) to classic, classic plus and premium pensions when you:

• make a retrospective pay award, or
• backdate a member’s pension choice to the day they started and the period straddles more than one financial year.

Process for nuvos

2. With nuvos, retrospective adjustments for pay awards after year end are not permitted. This is because any adjustments to pensionable pay you make can only be made in the nuvos pension account year (which runs from 1 April to 31 March). Therefore, a retrospective pay award paid after 31 March cannot be credited to the previous year and neither can the ASLC.

Revised process for classic, classic plus and premium

3. You have discretion, in light of the different approach between nuvos and classic, classic plus and premium, to only apply the current ASLC rates for all schemes. This might lead to a higher ASLC payment because you are using the current rates, but you should make savings in time and staff resources as you do not need to make manual calculations.
4. The examples below follow the new guidance

Example 1
Retrospective pay period: 1 April 05 – 31 July 07 inclusive
Pensionable pay for year April 05-Mar 06 = £20,000
Pensionable pay for year April 06-Mar 07 = £22,000

Retrospective pay award for 05-06. Salary increased to £21,000
Retrospective pay award for 06-07. Salary increased to £23,500
Pay award from April 07 = £23,700

Balance due for 1 April 05 to 31 March 06 = £1,000 (£21,000 - £20,000)
Balance due for 1 April 06 to 31 March 07 = £1,500 (£23,500 - £22,000)
Balance due for 1 April 07 to 31 July 07 = £566.67 (23,700 - £22,000 / 12 (months) x 4 (months))
Total amount of arrears = £3,066.67.

Add £3,066.67 to August 07 salary (£23,700/12 = £1,975.00) = £5,041.67
Apply current ASLC band (07-08) applicable to £23,500 = 19.5%
Employer contribution (£5,041.67 x 19.5%) = £983.13

Example 2
Retrospective pay period: 1 April 05 – 31 July 07 inclusive
Pensionable pay for year 05-06 = £36,000
Pensionable pay for year 06-07 = £37,500

Retrospective pay award for 05-06. Salary increased to £37,200
Retrospective pay award for 06-07. Salary increased to £38,900
Pay award from April 07 = £42,000

Balance due for 1 April 05 to 31 March 06 = £1,200 (£37,200 - 36,000)
Balance due for 1 April 06 to 31 March 07 = £1,400 (38,900 - £37,500)

Balance due for 1 April 07 – 31 July 07= £1,500 ((£42,000 - £37,500) / 12 months x 4 months))
Total amount of arrears = £4,100.

Add £4,100 to August 07 salary (£42,000 / 12 months) = £7,600.00

Apply current ASLC band (07-08) applicable to £42,000 = 23.2%

Employer contribution (£7,600.00 x 23.2%) = £1,763.20

5. Guidance on calculating partnership contributions remains as given in EPN144.
6. When paying arrears, you must take account of the respective earnings cap that relates to each year the arrears cover for high earners who are subject to the cap.

Contractual arrangements with payrolls

7. You will need to discuss with your payroll how they will implement a mechanism for dealing with retrospective pay awards as a result of this new guidance.

Reference

This document refers to EPN144

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