EPN71 - Retrospective admission of part-timers to the PCSPS

Date posted: 21/07/2003

Issue: This Notice:

• updates employers on the Employment Tribunal cases involving the retrospective admission of part-timers to the PCSPS;
• provides guidance on handling these cases; and
• advises on how future cases should be dealt with.

Action: This Notice will be of particular interest to:

• employers who have Employment Tribunal cases lodged against them by members (or former members) of staff who were denied access to the PCSPS because of their part-time hours (although all employers will need to be issue the model office notice referred to in paragraph 18).
• Employers, in conjunction with their APACs, must take the action set out in paragraphs 5 – 20.

Timing: Normal course of business

Reference

PC/155 (issued on 12 April 2001) and EPN19 (issued 27 August 2002)

Background

1. The above references set out the background to the various Employment Tribunal cases that have been lodged against Civil Service employers claiming that individuals had been denied access to the PCSPS because of their part-time hours, and this constituted indirect sex discrimination. Following a judgment on this issue by the European Court of Justice, the House of Lords ruled that such claims could be backdated as far as 8 April 1976, but the individual must have lodged their claim no later than 6 months after the end of the period of employment during which they were denied access to the pension scheme. All public sector schemes have, with the Treasury, been identifying the approach to be taken to progress admitted claims for retrospective admission.

Current Position

2. Following detailed discussions across public service schemes, agreement has been reached with the relevant unions, including the Civil Service unions, to allow settlement in relation to the majority of the Employment Tribunal cases.
3. The Government Actuary’s Department (GAD) have produced a model settlement for use (adapted as necessary) by public sector schemes. The methodology used in this model is explained at Annex A. The model facilitates calculation of employee contribution arrears in cases where the individual was denied access to the PCSPS at any time between 8 April 1976 and 31 December 1994 on the grounds that they did not work sufficient hours to qualify for membership of the scheme. (From 1 January 1995 the minimum hours limit was removed.)
4. Employers should be aware that there are still a number of cases which are ‘stayed’ with Employment Tribunals. These concern individuals who were denied access to the PCSPS not because of the hours they worked, but rather because of the nature of their employment. These ‘atypical worker’ cases generally involve individuals employed on a casual or fee-paid basis. No progress is possible in these cases pending the outcome of hearings at the Employment Tribunals. Further information about these cases will be issued in due course.

Next Steps

A - For ‘standard’ cases lodged with a Tribunal

5. Employers first need to ensure that they know which of their employees (or former employees) have claims lodged with an Employment Tribunal which can now move towards settlement. Most employers will already hold this information, but to be certain, they are asked to contact Michala Emmett (Treasury Solicitor’s Department) on 020 7210 3583. Where an individual’s claim for retrospective admission to the PCSPS in respect of previous part-time service has been accepted (i.e. it is not one of the ‘atypical worker’ cases that have been stayed), employers need to identify the service history of the member in respect of the period for which they were denied access to the scheme. If possible, employers also need to confirm the full-time equivalent rate of pay the member was in receipt of at the end of this period.

Case A: full service history and pay details available

Employers should calculate the arrears of member WPS contributions using the GAD model. This is in the form of an Excel spreadsheet, and can be downloaded from the HM Treasury web site at: www.hm-treasury.gov.uk/media//30851/preston_model_annex2june.xls

Instructions for using the GAD model are at Annex B to this notice.

6. When the necessary information is input, two figures are calculated. The first (smaller) sum is the amount due where the member is not able to benefit from tax relief (i.e. where they have already left service). The second (larger) sum is the amount payable by the member where they are still in service and, therefore, able to benefit from tax relief.

Member left employment

7. If the member has left service with a deferred award, they must pay the smaller arrears figure by cheque (made out to the Civil Superannuation Vote), no more than 6 months after being informed of the amount payable. (If this would cause the member serious financial hardship, employers should consult CSP to consider alternative arrangements.) Where the member is already in receipt of their PCSPS benefits, they may be allowed to offset the amount owed against the increased lump sum and arrears of pension that will become payable. (Note: this is not normally an option to those who owe, in other circumstances, contributions to the scheme.)

Active members

8. If the member is still in service, the arrears should normally be paid by 12 equal monthly payments through the payroll (i.e. so the member would receive tax relief at source). If, due to the 15% contribution limit, it is not possible for the member to pay the arrears over 12 months, a longer payment period may be agreed, but not so as to exceed 24 months. If even repayment over 24 months creates problems (e.g. serious financial hardship for the member), employers should consult CSP to consider payment over a longer period.
9. Employers should write to the member telling them:

• the amount of contribution arrears that are payable
• the method of repayment (see preceding paragraphs)
• the amount of additional reckonable and qualifying service this will buy
• their accrued benefits (as at a current date) before and after the part-time service is added (your APAC will calculate this for you)
• that for some individuals it may be in their interests to remain in SERPS rather than to seek admission to their public service scheme (NOTE: It is not the responsibility of either the employer or scheme to calculate which would be the most beneficial option. Information about available choices has been compiled by the Pension Service in their leaflet ‘Backdating membership of an occupational pension scheme - What this might mean for you'. Individuals will need to take their own financial advice.)
• for members who are already in receipt of a SERPS pension, overpayment of SERPS will be deducted from their refund of NI contributions (NICO will do this)
• that pension contributions must be completely paid up before a full pension award can be put into payment.

You should send the member two copies of this letter. If the member is content to proceed with the reinstatement of their part-time service, they should provide acknowledgement to this effect by signing and dating one copy of the letter and returning it to you. You will need to arrange for the arrears of employee contributions to be paid.

10. If the member has been represented by their union in their Employment Tribunal appeal, employers will need to write to the union representative notifying them that settlement has been reached and asking them to withdraw the case. If the member was not represented by a union, the employer should write to the Employment Tribunal direct to have the case withdrawn, enclosing a copy of the member’s acknowledgement. Union representatives:

Alan Maloney
PCS
160 Falcon Road
Clapham Junction
LONDON
SW11 2LN
Tel: 020 7924 2727
e-mail: alanm@pcs.org.uk

Marion Scovell
PROSPECT
Prospect House
75-79 York Road
LONDON
SE1 7AQ
Tel: 020 7902 6636
e-mail: marion.scovell@prospect.org.uk

Revision of award

11. Only after employers have received confirmation that the case has been withdrawn and arrears of employee contributions paid (or arrangements made to achieve payment), should they arrange for their APAC to amend the member’s records to include the additional reckonable and qualifying service. If the member has already left Civil Service employment, the APAC will need to issue a revised award to the pensioner payroll authority (Capita Hartshead).
12. All service credited in this way is treated as service in classic. Where the member opted for classic plus, the service will be added to their pre-October 2002 service. Where they opted for premium, the service will be multiplied by the appropriate factor (in most cases 0.92) and treated as premium service.

Case B: full service history is not available

13. Employers will need to build up the member’s service based on the balance of probabilities using available evidence. The member should be asked to provide a statement setting out their recollection of their service history for the period in question, supported by any documentary evidence they may hold. Additionally, the member’s rate of pay for the relevant period may be gleaned from their National Insurance records. Employers should contact NICO at the address below, quoting the member’s full name, NI number, and date of birth. Once the member’s service has been agreed, employers should take the action in the preceding paragraphs.

National Insurance Contributions Office
Central Payments – HMF Section
Room BP2101
Benton Park View
Newcastle upon Tyne
NE98 1ZZ

National Insurance refunds

14. After a member has been retrospectively admitted to the pension scheme, employers will need to write to NICO informing them of retrospective admission and ask for a refund of overpaid employer and employee National Insurance contributions. Employee contributions should be returned to the member and treated as an underpayment of salary. The member may choose to offset their refund of NI contributions against their arrears of PCSPS contributions. If so, the employer should arrange for them to be paid to the Civil Superannuation Vote. Guidance on how employers arrange for NI contributions to be refunded are at Annex D to this notice.

SERPS unravelling

15. This process will be kick-started when employers advise NICO they are admitting part-timers into the contracted-out scheme and are seeking national insurance refunds. (Employers should already know the procedures for making such claims.) For part-timers still in employment this will involve NICO calculating the appropriate contracted-out deduction to make to the additional pension, so they don't get a SERPS entitlement for the period of reinstatement. For SERPS pensioners, NICO will adjust their records on NIRS2 to calculate the entitlement to SERPS and then forward the details to the DWP Pensions Computer System. This will recalculate the pension award, change the pension in payment and calculate the overpayment. Any overpayment of SERPS will not be recoverable from the member although it will be set-off against any National Insurance refund that may be due.

Personal pensions

16. For members who contributed to a personal pension during the period to be re-instated into the PCSPS, there is no need to unscramble personal pensions as they will have been validly contracted. Whilst it is unlikely that part-timers with personal pensions and re-instated service would breach the maximum retained benefits limit, NICO have advised that someone with an Appropriate Personal Pension (APP) pays ‘A’ rate contracted in NI contributions. If a parttimer is retrospectively reinstated in an occupational pension scheme their NI record will be unwound and changed to ‘D’ rate contracted-out contributions and refunds for the difference will be made to the employer and employee. IR will automatically claw back the minimum contribution made to the APP from the personal pension provider on the same basis as contributions were made (i.e. no interest charged). If NI contributions/earnings information are adjusted after minimum contributions paid to a Personal Pension have been used to provide an annuity, the minimum contribution can be recovered from the member. Adjustments that create a relatively small amount for recovery are generally waived as not cost effective to pursue. In the case of Preston part-timers the adjustment of contributions from ‘A’ to ‘D’ may cover a number of tax years therefore the sum to be recovered could be quite substantial. In these circumstances NICO have confirmed that they would pursue the recovery of the overpayment of the minimum contributions from the member’s national insurance refund.

B – Staff still in post who have not made an Employment Tribunal claim

17. Serving staff who were denied access to the pension scheme between 8 April 1976 and 31 December 1994 because of the minimum hours threshold, have to make a claim for retrospective admission within 6 months of their current period of employment coming to an end. We do not want to prolong resolution of such cases and earlier claims may better allow the member to benefit from tax relief on contribution arrears. In the circumstances, employers are asked to issue the Model Notice at Annex C to existing staff. Employers must make sure that this notice is seen by all those potentially eligible for retrospective admission, including those on career breaks, unpaid leave, secondment, or long-term sick absence. The notice requests members to make a claim for retrospective admittance to the pension scheme within 6 months of the date of the notice. (Claimants should be asked to complete the proforma at Annex C1.) It is unlikely that we can enforce this time limit, and a member could still apply for retrospective membership up to 6 months after leaving employment. Nevertheless, employers will understand that it is in everyone’s interest to deal with these cases now if possible.

NOTE: Employers should ensure that they have a supply of the DWP leaflet‘ Backdating membership of an occupational pension scheme: what this might mean to you’, which can be downloaded from the DWP website at:

www.thepensionservice.gov.uk/pdf/(050802)OPSleafletAW.pdf

18. Where existing staff (or members who have left service within the last 6 months) apply to have earlier part-time service which was not covered by the pension scheme treated as pensionable, employers will need to check that the service in question formed part of their current (or most recent) period of Civil Service employment. You must also confirm that their terms of employment during the period in question were such that they would have been admitted to the pension scheme were it not the the minimum hours limit in force at the time (i.e. check that the member was not fee-paid or casual at the time). If the member’s circumstances meet this criteria, employers should follow the approach set out in paragraphs 6-7, 9-10, and 12-16.
19. Any cases which raise points not covered in this guidance should be referred to Civil Service Pensions (contact Colin Hennem) for consideration.
20. CSP will be running some workshops for employers on Tuesday 2nd and Thursday 4th September 2003, explaining how to implement this settlement. If you wish to send a representative to this, please fill out the booking form at Annex E.

Contacts:

Enquiries about content:

Colin Hennem

colin.hennem@cabinet-office.x.gsi.gov.uk

Tel: 01256 846447

Enquiries about distribution:

Judith Hornby

judith.hornby@cabinet-office.x.gsi.gov.uk

Tel : 01256 846271