Work out your members’ pay
There are several pay definitions we use in Pensions.
Pensionable pay (PP)
This is the pay the member gets when they work normally. It’s what they pay their pension contributions on. Pension benefits are built up based on PP for each year (1 April to 31 March). It includes non-contractual overtime or pay for extra and enhanced hours. It doesn’t include pay if it’s been reduced for sickness. You can find the full definition of what it does and doesn’t include on the LGPS regulations website.
Assumed pensionable pay (APP)
This is used to work out what an employee would have earned if their pay hadn’t been reduced or stopped. This is the pay that you pay your employer contributions on.
To calculate APP, work out the annual rate of pay based on the three months or 12 weeks before the event. For example:
- the first drop in pay when off sick
- the start of ordinary maternity leave
- ill health retirement, or
- date of death in service.
If an employee died on 15 June, you must base their APP on March, April, and May. You need to remove any ‘lump sums’ (unless paid regularly) but include any APP already credited in those 3 months. You can include regular lump sum payments at your discretion. Work out an annual figure and allocate to the applicable period. This replaces any pay received. For example:
Month 1 = £1,400
Month 2 = £2,500 (including £1,000 bonus and £100 overtime)
Month 3 = £1,400
The annual rate of APP = (£1,400 + £1,500 + £1,400) / 3 x 12) = £17,200
If the APP is lower than the actual PP they’d normally get, you can use the higher PP instead. You must base this on the PP the member had in the last 12 months.
The LGPS website also has some APP bite size training.
Cumulative pay
This is pensionable pay plus any assumed pensionable pay. You must report it separately per section of the LGPS (main and 50/50) and per employment. We use it to work out our member’s pensions each year under the Career Average Re-valued Earnings (CARE) scheme. It’s also the pay you need to use to decide a member’s contribution band.
Final pay
The LGPS changed from a final salary scheme to a career average scheme on 1 April 2014. If your employee joined the LGPS before 1 April 2014, they’ll have built up pension in the final salary scheme.
Final pay is all salary, wages and fees, and other payments, paid for the job. It also includes any other payment in their employment contract stated as being a pensionable emolument. Unlike the CARE scheme it doesn’t include non-contractual overtime. You can find a full list of what is and isn’t included on the LGPS bite size training page. You can select a text only version if you prefer.
Final pay is based on either:
- the pay due for the member’s final year of the LGPS, or
- if it’s higher, one of the previous two years.
Unpaid leave
If the member had unpaid leave and:
- bought the lost pension back, you must treat the final pay as if they weren’t absent
- didn’t buy it back, you must divide the pay they had by the number of paid days during the final year and multiply by 365 days.
If the member is part time you must gross up the pay to an annual figure to give full time equivalent (FTE) figures.
Useful tools
- You can download our Final pay calculator to help you to work out your final pay figures.
- The LGPS website also has some Final pay bite size training.
