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1. In EPN403 we set out how employee contribution rates are applied. In particular, it states:
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‘An employee’s contribution rate in a pay period is therefore based on which band their annualised pensionable earnings falls in… If there is a late pay award or there are arrears of pay for any other reason (whether or not those arrears relate to a previous scheme year) then the banding will relate to the annualised amount of pensionable earnings actually paid in the relevant pay period (even if the back pay causes the band to shift for just that pay period). Contributions are paid on, and annualised figures based on, all elements of pay which are pensionable (that is, basic pay and all pensionable allowances and bonuses).’ |
2. Please note: if back pay causes a member’s pay band to shift, even for a single pay period, it may result in a complaint from the member.
Backdated salary policy
3. The policy set out in EPN403 continues to operate unchanged.
4. Some employers have mitigated the problem of bands shifting following back pay by spreading the back pay over two or more pay periods. For example:
A member earns £48,000 per year and receives a pay increase to £49,000. The threshold for member contributions is £51,005 so this member should pay contributions at 5.45% both before and after the pay increase.
5. However, if the pay award is backdated for three months, the member will receive backdated pay of £250 in the month the pay award is applied, in addition to their new, higher salary. This increases their contribution rate to 7.35% for that month only.
6. To avoid the back pay causing the contribution band to shift, the employer could choose to spread the back pay over two (or more) months. The table below shows how this would avoid the member’s contribution band shifting when they receive the backdated pay award.
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Annual |
Monthly |
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Former pay |
£48,000 |
£4,000 |
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Pay following annual award |
£49,000 |
£4,083 |
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Threshold for 7.35% contribution rate |
£51,006 |
£4,251 |
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Back pay (months) |
3 |
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|
Backdated pay |
£250 |
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Pay in period of back pay |
n/a |
£4,333 |
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Pay in period of back pay if spread over 2 months |
n/a |
£4,208 |
7. We would like to clarify that there are no issues arising from the spreading of back pay over two or more periods. For avoidance of doubt, we are not suggesting you must do this, as pay policy is an employer decision.
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Contacts If you have a question about the distribution of EPNs or you need to receive them in a different format contact employerpensionnotice@cabinetoffice.gov.uk You can find electronic copies of the Employers’ Pension Guide, all current EPNs and forms on our website www.civilservicepensionscheme.org.uk under ‘Employers’. This notice is for employers and should not be issued to scheme members. If members have a question about their pension they can find information at: |