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TEESSIDE PENSION FUND

TEESSIDE PENSION FUND. Pensionable Pay. Pensionable Pay. Meaning of pensionable pay Pensionable or not Final pay - general Full time & part time employees Final pay – BIS Last 365 days Reductions & restrictions Certificate of Protections Pre 2008 & post 2008 Final pay - fees

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TEESSIDE PENSION FUND

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  1. TEESSIDE PENSION FUND

  2. Pensionable Pay

  3. Pensionable Pay • Meaning of pensionable pay • Pensionable or not • Final pay - general • Full time & part time employees • Final pay – BIS Last 365 days • Reductions & restrictions • Certificate of Protections • Pre 2008 & post 2008 • Final pay - fees • Unusual calculations

  4. Pensionable Pay • Meaning of pensionable pay • salary • wages • fees & other payments • for members own use in respect of their employment • - pensionable emoluments • specified in their contract of employment

  5. Pensionable Pay • Pensionable Pay does not include • - Payments for non-contractual overtime • any travelling, subsistence or other allowance in respect of expenses incurred in relation to the employment • any payment in consideration of loss of holidays • any payment in lieu of notice to terminate their contract of employment • any payment as an inducement not to terminate his employment before the payment is made • the amount of any supplement paid by the Environment Agency in recognition of the difference in contribution rates between members of the principal civil service pension scheme and the Scheme • - Any payment by way of compensation for the purposes of achieving equal pay in relation to other employees

  6. Pensionable Pay • Workshop 1

  7. Pensionable Pay • Pensionable or not? • Mr Workaholic commences employment with you and his first pay packet is comprised of many elements. • £2,500.00 Salary • £ 250.00 Performance-related Pay • £1,000.00 Cash equivalent of lease car • £ 500.00 Contractual Overtime • £ 296.75 Travelling Expenses • £ 428.75 Subsistence expenses • £ 14.00 First Aid Allowance • £ 154.25 Enhancement for weekend working • £ 850.00 Non-contractual overtime • £5,993.75

  8. Pensionable Pay • Pensionable or not? • Mr Workaholic commences employment with you and his first pay packet is comprised of many elements. • £2,500.00 Salary Yes £ 250.00 Performance-related Pay Yes £1,000.00 Cash equivalent of lease car No • £ 500.00 Contractual Overtime Yes • £ 296.75 Travelling Expenses No • £ 428.75 Subsistence expenses No • £ 14.00 First Aid Allowance Yes • £ 154.25 Enhancement for weekend working Yes • £ 850.00 Non-contractual overtime No • £5,993.75

  9. Pensionable Pay • Next month he receives a similar pay packet but with an extra £1,000.00 ‘honoraria’ payment. • Is the honoraria pensionable?

  10. Pensionable Pay • Next month he receives a similar pay packet but with an extra £1,000.00 ‘honoraria’ payment. • Is the honoraria pensionable? • Depends on what the honoraria is in respect of: • Lieu of duties Yes • Anything in the exceptions list No • (i.e. extra hours that couldn’t put through)

  11. Pensionable Pay • In a number of months time his final pay packet includes £2,500.00 payment in lieu of notice and £1,000.00 payment in lieu of holidays not taken. • Are either of these payments pensionable?

  12. Pensionable Pay • In a number of months time his final pay packet includes £2,500.00 payment in lieu of notice and £1,000.00 payment in lieu of holidays not taken. • Are either of these payments pensionable? • NO

  13. Pensionable Pay • Final Pay • - year ending on day member ceases to be an active member • - best of the last three years • - part time – use a single comparable whole time employment • - disregard any absences due to illness or injury • Pensionable Pay • - calculated as final pay, where a year is 365 days • - leap year 366 days only if date of leaving is 29th February • - less than one year’s service, convert to 365 days • i.e. Member employed from 1st March to 21st September • on a salary of £18,000.00 • so if pay for period (205 days) was £10,109.59, • the pensionable pay would be • £10,109.59/205 x 365 = £18,000.00

  14. Pensionable Pay • If the pay rates are as follows: 01/12/2007 to 31/03/2008 = £ 26,067.00 • 01/04/2008 to 30/11/2008 = £ 26,835.00 • You need to calculate the period 01/12/07 to 31/03/2008 at the rate of £26,067 and the period 01/04/2008 to 30/11/2008 at the rate of £26,835 • 01/12/2007 to 31/03/2008 gives a number of days of 121 days • 01/04/2008 to 30/11/2008 gives a number of days of 244 days • 365 days • Pensionable pay • 01/12/07 to 31/03/08 is 121 / 365 x £26,067.00 = £ 8641.39 • 01/04/08 to 30/11/08 is 244 / 365 x £26,835.00 = £17,939.01 • Pensionable Pay £26,580.40 • The pensionable pay you calculate will always fall • between the first and last salaries.

  15. Pensionable Pay • Final Pay/Pensionable Pay – Why 365 days? • Strictly speaking the final pay should done in accordance with the way in which a person is paid. • - employers pay a salary/wage • - paid monthly i.e. 1/12th • - paid lunar i.e. every 28 days • - 52 weeks • - 1/260th of the annual salary for each working day • Allows many variations • i.e. leaving on the 12th of a month • - September would be 12/30ths, October would be 12/31sts • - or 12/28ths

  16. Pensionable Pay • Mrs Hutton • Retires at age 60 on 29 September 2010. She is monthly paid and her rates of pay over the last year were: 01 April 2009 £ 16,440.00 p.a. • 01 April 2010 £ 17,400.00 p.a. • Final/Pensionable pay • 30 September 2009 to 31 March 2010 • £16,440.00 x 6/12 = £8,220.00 • £16,440.00/12 x 01/30 = £ 45.67 • 1 April 2010 to 29 September 2010 • £17,400.00 x 5/12 = £7,250.00 • £17,400.00/12 x 29/30 = £1,401.67 • Pensionable Pay = £16,917.34

  17. Pensionable Pay • Mrs Hutton • Retires at age 60 on 29 September 2010. She is monthly paid and her rates of pay over the last year were: • 01 April 2009 £ 16,440.00 p.a • 01 April 2010 £ 17,400.00 p.a. • Worked on days rather than months gives the following • Final/Pensionable pay • 30 September 2009 to 31 March 2010 £16,440 x 183/365 = £ 8,242.52 • 1 April 2010 to 29 September 2010 £17,400 x 182/365 = £ 8,676.16 • Pensionable Pay = £16,918.68

  18. Pensionable Pay • Workshop 2 • Full Time Employee Leaving Date 31 December 2003 • Salary Details 01.01.2003 £13,884.00 • 01.04.2003 £14,391.00 • Calculate the annual pensionable pay:

  19. Pensionable Pay • Workshop 2 • Full Time Employee Leaving Date 31 December 2003 • Salary Details 01.01.2003 £13,884.00 • 01.04.2003 £14,391.00 • Calculate the annual pensionable pay: • 01.01.03 - 31.03.03 90/365 x 13,884.00 = £ 3,423.45 • 01.04.03 - 31.12.03 275/365 x 14,391.00 = £10,842.53 • = £14,265.98

  20. Pensionable Pay • Workshop 2 • Full Time Employee Leaving Date 03 March 2004 • Salary Details 04.03.2003 £15,264.00 • 01.04.2003 £16,194.00 • 22.09.2003 £16,718.00 • Calculate the annual pensionable pay:

  21. Pensionable Pay • Workshop 2 • Full Time Employee Leaving Date 03 March 2004 • Salary Details 04.03.2003 £15,264.00 • 01.04.2003 £16,194.00 • 22.09.2003 £16,718.00 • Calculate the annual pensionable pay: • 04.03.03 - 31.03.03 28/365 x 15,264.00 = £ 1,170.94 • 01.04.03 - 21.09.03 174/365 x 16,194.00 = £ 7,719.88 • 22.09.03 - 03.03.04 163/365 x 16,718.00 = £ 7,465.85 • = £16,356.67

  22. Pensionable Pay • Workshop 2 • Full Time Employee Leaving Date 15 January 2004 • Salary Details 16.01.2003 £13,884.00 plus £100 First Aid Allowance • 01.04.2003 £14,391.00 plus £100 First Aid Allowance • Calculate the annual pensionable pay:

  23. Pensionable Pay • Workshop 2 • Full Time Employee Leaving Date 15 January 2004 • Salary Details 16.01.2003 £13,884.00 plus £100 First Aid Allowance • 01.04.2003 £14,391.00 plus £100 First Aid Allowance • Calculate the annual pensionable pay: • 16.01.03 - 31.03.03 75/365 x (13,884.00+100) = £ 2,873.42 • 01.04.03 - 15.01.04 290/365 x (14,391.00+100) = £11,513.40 • = £14,386.82 • OR • 16.01.03 - 31.03.03 75/365 x 13,884.00 = £ 2,852.88 • 01.04.03 - 15.01.04 290/365 x 14,391.00 = £11,433.94 • = £14,286.82 + 100 = £14,386.82

  24. Pensionable Pay • Full time & Part time employees • Benefit regulation 1 defines a whole time employee as • ‘an employee whose contract of employment provides’ • That he is such an employee for the scheme • that his contractual hours are not less than the number of contractual hours for a person employed in that employment on a whole time basis • Benefit regulation 7(3) part-time members accrue membership as an appropriate fraction of the duration of membership they have. • Benefit regulation 7(4) states ‘the numerator of that fraction is the number of contractual hours during the part-time service and its denominator is the number of contractual hours of that employment if it were on a whole-time basis’

  25. Pensionable Pay • Straight forward, simple definition • School crossing patroller’s whole-time equivalent hours are 7.5 per week • Therefore a part timer working 5 hours per week for 6 years at a rate of £6.00 per hour would have a pensionable pay of 6 x 7.5 x 52.14 = £2,346.30 and pensionable service of 6 x 5/7.5 = 4 years. • This would give a pension of 4/60 x 2,346.30 = £156.42 p.a. • Transferred to a cleaning post of 5 hours per week where the whole-time equivalent hours are 37 at a rate of £6.00 per hour. Pensionable pay becomes 6 x 37 x 52.14 =£11,575.08. • The same service already accrued would give a pension of • 4/60 x 11,575.08 = £771.67 p.a.

  26. Pensionable Pay • Straight forward, simple definition • Therefore for administrative purposes the whole-time equivalent of all part-time employment is 37hours. • The service is therefore recorded as ??.??/37.00 • The pensionable pay is calculated as £? X 37 x 52.14.

  27. Pensionable Pay • Hours & Pay proportionality • Mrs Red works whole-time on a salary of £10,000.00 plus £2,000.00 enhancement for weekend working. • In one year she would contribute £660.00 (5.5% of £12,000.00) • After 10 years membership, Mrs Red would receive a benefit of • 10 x 1/60 x12000 = £2,000.00 p.p. pension

  28. Pensionable Pay • Now if we take Mrs White & Mrs Blue who work the same job as Mrs Red but on a part-time basis. Both work 18.5 hours per week, but Mrs Blue does all the weekend work and receives all of the weekend enhancement. • In one year, Mrs White would contribute £275.00 (5.5% of £5,000.00) • In one year, Mrs Blue would contribute £385.00 (5.5% of £7,000.00) • Regulation 8 states ‘In the case of part-time employment, the final pay is the pay which would have been paid for a single comparable whole-time employment.’

  29. Pensionable Pay • If we take this statement literally, the whole-time equivalent pay would be £12,000.00 • So after 10 years Mrs White would get a benefit of • 5 x 1/60 x £12,000 = £1,000.00 p.a. • Similarly, • After 10 years Mrs Blue would get a benefit of • 5 x 1/60 x £12,000 = £1,000.00 p.a.

  30. Pensionable Pay • Is this fair? • Mrs White would have paid £2,750.00 in contributions over the 10 yrs • Yet Mrs Blue would have paid £3,850.00 in contributions over the 10 yrs • I.e. Mrs Blue paid in 40% more • More Logical • If Mrs White’s whole-time equivalent pay was £10,000.00 (a 37 hour working week without weekend enhancement. • Mrs White’s benefit would be 5 x 1/60 x £10,000 = £833.33 p.a. • Is Mrs Blue’s whole-time equivalent pay still £12,000.00? ( a whole-time post with weekend enhancements), • Mrs Blue’s benefit would be 5 x 1/60 x £12,000 = £1,000 p.a. • Is this fair? • Mrs Blue is receiving 20% more in benefit, • but has paid 40% more in contributions.

  31. Pensionable Pay • Would it be fairer to say that the whole-time equivalent for a half-timer with one weekend enhancement is one whole-timer with two. • Mrs Blue’s whole-time equivalent pay would be £14,000.00. • Her benefit would be 5 x 1/60 x £14,000 = £1,166.67 p.a. • From a fund’s point of view • They paid Mrs White £833.33 and Mrs Blue £1,166.67, a total of £2,000.00 (equal to Mrs Red’s benefits) • in return for contributions of £2,750.00 from Mrs White and £3,850.00 from Mrs Blue, a total of £6,600.00 (equal to Mrs Red’s contributions) • From the member’s point of view • Mrs Blue has paid 40% more in contributions than Mrs White and has received 40% more in benefits than Mrs White

  32. Pensionable Pay • Summary

  33. Pensionable Pay • However • Could it then be claimed that the whole time equivalent for Mrs Blue is £14,000.00, thereby moving her into the next contribution band. • Mrs Blue would therefore pay 5.8% of £7,000.00 being £406.00. • An extra £210.00 over 10 years in the fund’s coffers.

  34. Pensionable Pay • Consider another conundrum • Mrs Green worked along side Mrs Red until the last year, when she reduced to exactly half time working the weekends. She receives a salary of £5,000.00 plus the weekend enhancement of £2,000.00. • Should her pension be: (a) 9.5 x 1/60 x £14,000.00 = £2,216.67 or • (b) 9.5 x 1/60 x £12,000.00 = £1,900.00 • If (a) Mrs Green would receive more pension than Mrs Red! – effectively the first 9 yrs have been increased in value by 16% • (i.e. based on £14,000 instead of £12,000) • Is (b) mathematically correct! – effectively Mrs Green’s benefits are 9.5/10ths of Mrs Red’s. • However, Mrs Green has paid a contribution in her final year that is nearly 60% of Mrs Red’s.

  35. Pensionable Pay • Benefit regulation 8 (3), in describing final pay states: • ‘in the case of part-time employment, the final pay is the pay which would have been paid for a single comparable whole-time employment’. • To calculate the final pay for a part-timer working 30 hours per week would be relatively simple, using the actual pay received in the final year and multiplying by 37/30. • So an example for a person working 30 hours per week and receiving the following pay: 01/12/2007 to 31/03/2008 = £21,135.41 • 01/04/2008 to 31/03/2008 = £21,758.11 • You would use the whole time equivalent • 01/12/2007 to 31/03/2008 = £26,067.00 (£21,135.41 / 30 hours x 37 hours) • 01/04/2008 to 30/11/2008 =£ 26,835.00 (£21,758.11 / 30 hours x 37 hours)

  36. Pensionable Pay • Hourly Rates: • 01/12/2007 to 31/03/2008 = £ 9.56 per hour • 01/04/2008 to 30/11/2008 = £ 10.28 per hour • The annual salaries would be • 9.56 x 37 x 52.14 = £18,442.96 • 10.28 x 37 x 52.14 = £19,831.97 • The pensionable pay would therefore be • 01/12/07 to 31/03/08is121 / 365 x £18,442.96 = £ 6113.97 • 01/04/08 to 30/11/08is244 / 365 x £19,831.97 = £13,257.54 • Pensionable Pay£19,371.51

  37. Pensionable Pay • Workshop 3 • Calculate the whole-time and part-time Pensionable Pay details for the following part time employee: • Leaving Date 15.2.2004 hours worked are 10 per week • Salary Details • 16.02.2003 Part-time annual pay £3,322.70 • 01.04.2003 Part-time annual pay £3,422.43

  38. Pensionable Pay • Workshop 3 • Calculate the whole-time and part-time Pensionable Pay details for the following part time employee: • Leaving Date 15.2.2004 hours worked are 10 per week • Salary Details: 16.02.2003 Part-time annual pay £3,322.70/10 x 37 = 12,294.00 • 01.04.2003 Part-time annual pay £3,422.43/10 x 37 = 12,663.00 • 16.02.03 – 31.03.03 = 44/365 x 12,294.00 = 1,482.02 • 01.04.03 – 15.02.04 = 321/365 x 12,663.00 = 11,136.50 • Whole-time pensionable pay = £12,618.52 • 16.02.03 – 31.03.03 = 44/365 x 3,322.70 = 400.54 • 01.04.03 – 15.02.04 = 321/365 x 3,422.43 = 3,009.86 • Part-time pensionable pay = £3,410.40 • Check: £12,618.52/37 x 10 = £3,410.41

  39. Pensionable Pay • Workshop 3 • Calculate the Pensionable Pay details for the following employee: • Leaving Date 18.7.2003 • Salary Details 19.07.2002 £221.50 per week plus £42.80 bonus per week 01.04.2003 £232.75 per week plus £46.50 bonus per week • N.B. FOR WEEKLY PAID STAFF THE ANNUAL RATE IS CALCULATED BY MULTILPYING THE WEEKS BY 52.14

  40. Pensionable Pay • Workshop 3 • Calculate the Pensionable Pay details for the following employee: • Leaving Date 18.7.2003 • Salary Details 19.07.2002 £221.50 per week plus £42.80 bonus per week 01.04.2003 £232.75 per week plus £46.50 bonus per week • 19.07.02 – 31.03.03 = 256/365 x (221.50 + 42.80 x 52.14 = 13,780.60) = 9,665.30 • 01.04.03 – 18.07.03 = 109/365 x (232.75 + 46.50 x 52.14 = 14,560.10) = 4,348.08 • Pensionable Pay = £14,013.38

  41. Pensionable Pay • Term-time members • The original intention of the new look LGPS was that membership and final pay calculations for term-time employees should be pro-rated • Part-timers service is recorded as ??.??/37.00 • To keep uniformity with part-timers, a term-time employee also has the service adjusted, so that the whole time equivalent pay is then used in the calculation of the pensionable pay. • An employee working 37 hours per week for 44 weeks per year would have their membership recorded as 31.22/37.00 ( i.e. 37 x44/52.14) • If the employee’s actual pay was £20,000.00, the final pay for this term-time employee would be grossed-up for benefitcalculations • i.e. £20,000.00 x 52.14/44 = £23,700.00

  42. Pensionable Pay • Part-time, term-time members • A part-time, term-time employee working 20 hours per week for 44 weeks per year would have their membership recorded as 16.88/37.00 (i.e. 20 x 44/52.14) • If the employees actual pay was £10,810.81, the final pay for this part-time, term-time employee would be grossed-up for benefit calculations • i.e. £10,810.81 x 37/20 x 52.14/44 = £23,700.00

  43. Pensionable Pay • Part-time & term-time members • For ease of administering and calculating benefits, Administering authorities should pro-rata the membership and use the whole-time equivalent pensionable pay

  44. Pensionable Pay • Workshop 4 • Calculate the pensionable pay for the following employee: • Leaving Date 18.3.2004 Pay Details • weekly hours weekly contractual • Date wage worked bonus overtime • 19.03.2003 £187.76 37 £16.50 5 hours • 01.04.2003 £194.75 37 £21.25 5 hours

  45. Pensionable Pay • Workshop 4 • Calculate the pensionable pay for the following employee: • Leaving Date 18.3.2004 Pay Details • weekly hours weekly contractual • Date wage worked bonus overtime • 19.03.2003 £187.76 37 £16.50 5 hours • 01.04.2003 £194.75 37 £21.25 5 hours • Hourly rate: 187.76/37 = 5.0746, 194.75/37 = 5.2635 • 19.03.03 – 31.03.03 = 13/365 x (187.76 + [5 x 5.0746] + 16.50 x 52.14) = 426.44 • 01.04.03 – 18.03.04 = 352/365 x (194.75 + [5 x 5.2635] + 21.25 x 52.14) = 12,184.44 • Pensionable pay = £12,610.88

  46. Pensionable Pay • Worked hours & paid hours • Hours/weeks worked are used in the calculation of membership • Hours/weeks paid are used in the calculation of the pensionable pay • Grossed/scaled up to whole time equivalent • Not as straight forward as it might appear!

  47. Pensionable Pay

  48. Pensionable Pay • SICK LEAVE • If a member is absent on sick leave he/she is treated for pension purposes as having received full normal pay. • Where the member works non-cyclical fluctuating hours an average from a previous period can used or a comparison made with another member employed in a comparable employment. • Basic roster hours reduce the level of pension benefits and will not be accepted.

  49. Pensionable Pay • Authorised leave • Reserved forces • Maternity, paternity or adoption leave • Sickness leave • Final pay based on what would have been paid if not been absent • Authorised Leave • Period of leave without pay after first 30 days • Regulation 9 (4) – scaled up pay

  50. Pensionable Pay • Authorised leave • Mr Fickle chooses not to pay contributions for the period 1/10/2008 to 30/11/2008 and leaves on 30/04/2009. Whilst the employee is a member throughout the whole of the final year, they are only entitled to count as active membership 304 days of the last year. So as per regulation 9 (4) the final pay must be scaled-up. • Pay 01/05/2008 £16,500.00 no changes • 01/05/2008 to 30/09/2008 153/365 x 16,500.00 = £ 6,916.44 • 01/10/2008 to 30/11/2008 (61 days for which no contributions were paid) • 01/12/2008 to 30/04/2009 151/365 x 16,500.00 = £ 6,826.03 • = £13,742.47 • Pay = £13,742.47 x 365/304 = £16,500.00

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