Full time pay
Full time pay calculations are needed for members who built up LGPS pension before April 2014. You may not know about an employee's previous membership so you will need to provide full time pay figures whenever you are asked for them.
You should not include non-contractual overtime or other types of pay that would not have been pensionable under the LGPS 2008 regulations, shown below.
- Pensionable pay before April 2014
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You will need know what was and was not pensionable under the 2008 regulations when you calculate full time pay for end of year, estimates and leavers.
Pensionable
- Salary, wages
- Fees
- Overtime – contractual only
- Any benefit in employee's contract as pensionable
Not pensionable
- Overtime – non contractual
- Not assessed for income tax
- Travel, subsistence, other expenses
- Pay in lieu of leave
- Pay in lieu of notice
- Inducement not to leave
- Inducement to terminate contract
- Car allowance
- Full time pay
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Full time pay is whatever an employee’s pensionable pay would be for working all week, all year round.
- Full time: The employee’s normal rate of annual pay
- Part time: You can scale up contractual hours and weeks, including any paid holiday, to the full time equivalent
- Variable hours: You can scale up the employee’s hourly rate of pay to the full time equivalent
- Variable time: Treat actual pensionable pay as the full time equivalent
- Average pay
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You will probably be asked for full time pay for employees whose rate of pay has changed during the year, so you need to calculate average full time pay.
- You can calculate an average using days, or months and days – this may be determined by your payroll system
- Whether you calculate using days or months and days will affect the result – so please try to be consistent
- Our pensionable pay spreadsheets are based on days (365ths)
- Final pay
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Final pay is used to calculate pension built up before April 2014. It is also needed for members whose pensions are protected by the Underpin, and to calculate added years (a type of additional contribution contract).
Final pay is normally the average full time pensionable pay in respect of the final 12 months of active membership, taking into account any contractual overtime and other pay that would have been pensionable under LGPS 2008 rules.
For variable time staff who don’t have a full time equivalent pay:
- check flat rate pay for each of the last three years, take an average if pay changed in the year
- average ad hoc pensionable payments such as fees, over the final three years. If there’s less than three years’ membership, average over the shorter time
- add the best flat rate pay to the averaged ad hoc payments to get final pay
What to include in final pay
- All pay in respect of the 12 month period that would have been pensionable under the LGPS 2008 regulations
- May include weekend enhancements, bonuses, contractual overtime, etc.
- Do not include non contractual overtime
- Do not include payments made in respect of work carried out in an earlier period. For example if the 12 months runs from 1 January to 31 December 2015, do not include contractual overtime that relates to work done in 2014, even if it was paid in 2015
- Always look at each of the final three years’ average pay and use the highest. For example, if an employee leaves on 31 October 2016, check the years ending 31 October 2014, 2015 and 2016
- If pay was reduced, frozen or restricted
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If an employee's full time rate of pay was reduced, frozen or restricted in the last 10 years of membership, other than for flexible retirement, they can ask you to use the average of the best 3 consecutive years in the last 10 pensionable pay.
How to calculate it
- Calculate full time pensionable pay for each year ended 31 March in the 10 year period
- Calculate each rolling three year average and increase it in line with inflation
- The best three year average will be the final pay
Fortunately there is a spreadsheet for this, 3 in 13 calculator
- Certificate of protection – issued before 1 April 2008
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If pay was reduced or restricted beyond an employee's control before 1 April 2008, their employer could have issued a certificate of protection. If the employee left within 10 years of the reduction or restriction, final pay would be based on:
- the best year's pay in the last five years, or
- the average of the best consecutive three years in the last 13, after inflation
There is a spreadsheet for this, please let us know if you need it. You cannot issue a certificate of protection for membership later than 31 March 2008.
- Examples
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Example 1: Full time average pay
- Last day: 31 December
- Year: 1 January to 31 December
Full time pay
- 1 January to 31 March: £16,000
- 1 April to 31 December: £16,500
Calculation in months
Period Months × WTE pay = Average pay 1 January to 31 March 3/12 × £16,000 = £4,000.00 1 April to 31 December 9/12 × £16,500 = £12,375.00 Year's average pay = £16,375.00 Calculation in days
Period Months × WTE pay = Average pay 1 January to 31 March 90/365 × £16,000 = £3,945.20 1 April to 31 December 275/365 × £16,500 = £12,431.51 Year's average pay = £16,376.71 Example 2: Less than one year's membership
- Joined: 1 January
- Last day: 12 October
- Pensionable pay period: 1 January to 12 October
Full time pay
- 1 January to 31 March: £18,500
- 1 April to 12 October: £18,870
Calculated in months
Period Months × WTE pay = Average pay 1 January to 31 March 3/12 × £18,500 = £4,625.00 1 April to 31 December 12/31 + 6 × £18,870 = £10,043.71 Total: £14,668.71 Scale up to annual pay figure
12 / months & days × total Annual figure 12 / (12/31 + 9) × £14,668.71 £18,751.75 Calculated in days
Period Months × WTE pay = Average pay 1 January to 31 March 90/365 × £18,500 = £4,561.64 1 April to 12 October 195/365 × £18,870 = £10,081.23 Total: £14,642.87 Scale up to annual pay figure
365 / days × total Annual figure 365 / 285 × £14,642.87 £18,753.15 - Employer training
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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 how to calculate final pay for members with final salary benefits. Final salary benefits were generally built up before April 2014. It also covers final pay protection where a members pensionable pay is reduced or restricted in certain circumstances.