Cumulative pensionable pay and Assumed Pensionable Pay (APP)

Pension built up from 1 April 2014 is based on cumulative pay. You need to keep separate pay records for the main section and 50/50 section of the LGPS. An employee will get 1/49 of each year's cumulative pay towards their pension, and half of that amount during any periods of 50/50 section membership.

Cumulative pensionable pay is the total of actual pensionable and assumed pensionable pay.

Actual pensionable pay

Actual pensionable pay is pay from any pay period or part of a pay period where the employee works normally. It does not include pay that has been reduced because of some types of absence such as sickness, because APP is used instead.

Assumed Pensionable Pay (APP)

APP is used when you need to know what an employee would have earned if they had been working normally and their pay had not been reduced or stopped. For example:

• if an employee's pay is reduced because they are off sick you will base the employer contributions on APP
• if an employee is on ordinary maternity leave, you will base the employer contributions on APP
• if an employee has taken unpaid holiday and wants to start a shared cost APC, you need the APP to work out how much pension the shared cost APC can buy
• if an employee takes ill health retirement, we will ask for an annual rate of APP to work out any enhancement that applies to the pension
• if an employee dies in service, we will ask for an annual rate of APP to calculate any dependants' pensions and lump sum

To calculate APP, work out an annual rate of pay based on the three months or 12 weeks before the event – for example the first drop in pay of sickness absence, the start of ordinary maternity leave, ill health retirement or date of death.

If you are using APP in respect of an absence, you will need to apply that annual rate to the length of the absence.

Action	Employee paid each month	Other employees
Calculate APP using	3 months before the month in which the event occurred	12 weeks before the pay period in which the event occurred
For example	If an employee died on 15 June, base APP on March, April and May	If a weekly paid employee retired in week 37, base APP on weeks 24 to 36 inclusive
Work out annual APP Add on payments from previous 12 months that would have recurred during the absence, or if the employee had not retired or died	Pay + pay + pay / 3 × 12 + recurring payments = Annual APP	Total 12 weeks' pay / 12 × 52 + recurring payments = Annual APP
To apply annual APP to an absence	Annual APP / 12 × length of absence = APP for absence	Annual APP / 52 × length of absence = APP for absence

If the APP is lower than the pay the member would receive if they were at work, you as the employer can substitute the higher of the two figures.

Examples

An employee's pension is based on their cumulative pay. Cumulative pay is made up from actual pay (whenever the employee was working as normal) and assumed pensionable pay (if actual pay cannot be used - for example due to sickness absence).

You need to know how to calculate cumulative pay and assumed pensionable pay. To see how to do this, please look at these slides and workbook from our pensionable pay workshop.

• Pensionable pay slides
• Pensionable pay workbook

Employer training

In addition to the pensionable pay sessions Hampshire Pension Services run, the LGA have a free interactive online training module, aimed at employers and payroll providers. It covers the use and calculation of Assumed Pensionable Pay (APP). APP is a notional pay figure calculated by employers and reported to the administering authority when an employee's pay is reduced because they are absent from work. This notional pay figure is used to make sure an employee's pension builds up as if they were at work receiving their normal pay.

LGA Bitesize session - Assumed Pensionable Pay (APP)