Section 23 - Members buying lost LGPS pension

APCs were introduced in the Local Government Pension Scheme (LGPS) from April 2014 and replace the previous additional contributions known as additional regular contributions (ARCs).

There are two types of APCs:

Buying additional pension (See Section 12 - Members buying additional LGPS pension); or
Buying lost pension.

Both types of APCs use the same factors for calculating the cost and are payable in the same way. This section refers to buying lost pension only.

If the member wishes to go ahead and purchase the ‘lost’ pension, they will need to sign a contract to do so and you must notify the Southwark Pension Services of the amount of ‘lost’ pension being purchased, the method of payment, the cash contribution to be paid, the period over which it is to be paid, and if applicable, where the member has more than one active pension account, the account to which the APC contract is to be attached. If the member wishes to pay an APC for more than one job, they will need to submit an election form for each job.

APCs buy-back the period of ‘lost’ pension for an active member only, there are no dependants benefits included.

At the end of each Scheme year or at the date the APC contract is terminated if earlier, the member’s active pension account will be credited with the amount of ‘lost’ pension purchased that year. If the contract is terminated early because the member is retired with a Tier 1 or Tier 2 ill-health pension, (on enhanced benefits) the remaining amount of ‘lost’ pension is deemed to have been purchased and is credited to the member’s active account at the point of leaving.

Pension purchased in this way will be subject to reduction or enhancement if taken before or after the individual's Normal Pension Age (NPA) under the 2014 Scheme (except in cases where enhanced ill-health benefits are awarded).

Members can choose to cease paying an APC at any time and the member’s active pension account will be credited with the amount of ‘lost’ pension they have purchased to date. They cannot however restart the contract at a later date, they will need to make a new application for another APC contract to begin.

The member’s total pension account, including any amounts of ‘lost’ or additional pension bought and credited to their active account, shall be revalued at the end of each scheme year in line with the relevant HM Treasury Order for that year (but subject to an adjustment in the year the member ceases to be an active member to ensure no double indexation).

IMPORTANT NOTE – for APCs paid via regular monthly payments, the contributions are subject to periodic review and may increase in the future. If this applies, the pension fund administrators will let members know the revised contributions payable and the new contributions will apply from the April following the review.

If a member has a period of authorised unpaid absence, it is no longer possible for them to pay the missed pension contributions to purchase that period of service for any breaks from 1 April 2014 onwards. Instead an APC is needed to buy the ‘lost’ pension during that period.

Where a member elects to pay an APC to purchase any or all of the amount of pension ‘lost’ during the period of unpaid absence (including any period of unpaid additional maternity, paternity or adoption leave) and makes the election within 30 days (the employer can choose to extend this time limit) of returning to work, you the employer, will need to pay 2/3rds of the cost of the APC (a shared cost APC).

If the election is made after the 30 days, and you have not extended the time limit, the member will need to pay the full cost. Where the election is more than 30 days after they return to work, a warning will be shown to indicate that they will be required to meet the cost in full (unless the employer chooses to extend this 30 day period and the 30 day override box in the ‘Buy lost pension’ field has been ticked).

Note – a member can start an APC or shared cost APC (SCAPC) for buying ‘lost’ pension even if they are in the 50/50 section of the scheme. The maximum period of ‘lost’ pension a member can buy is 36 months.

To buy pension ‘lost’ due to industrial action, a member can start an APC contract whether they are in the 50/50 section of the Scheme or in the main Scheme. You, as the employer, are not required to pay towards the APC cost for ‘strike’ periods, but you can do so if you they want to, and also have the necessary discretion in place. Read Section 7 - Employer discretions policies for more.

Where you as the employer are paying 2/3rds of the cost and the member paying 1/3rd of the cost, this is split as follows:

Member cost = total cost / 3 rounded up to nearest penny.
Employer cost = total cost – employee’s cost.

You are advised to provide members with full details of how to buy ‘lost’ pension before they begin their period of unpaid leave, to ensure that they are aware of the need to elect to pay APCs within 30 days of their return to work to ensure a SCAPC.

In order for a member to apply for an APC to buy ‘lost’ pension they must first obtain a written statement from you providing the following details:

The total value of the lost Pensionable Pay (APP)* during the period of absence;
Where applicable, confirmation that you have agreed to pay employer contributions (as in SCAPC), and/or you have agreed to extend the period for making an election to beyond 30 days of returning to work;
Confirmation of the section of the Scheme the member was in during the period of absence; and
It may also be helpful if you could confirm with the member the reason for absence and the start and end dates of the period of absence.

*for details on how to calculate APP please refer to Section 24 - Assumed Pensionable Pay.

You will need to provide the above information to members either on request, or automatically at the end of the period of absence, remembering that the member only has 30 days from returning to work to make their election unless you have the discretion in place to extend this time limit.

Using the above information, the member must go the national LGPS website. From here they can use the online calculator to work out how much it will cost to buy the ‘lost’ pension each month, or by making a one-off lump sum payment via their payroll or directly to the Fund.

If the member elects to pay the cost of buying ‘lost’ pension as a regular deduction from their pay, it must be paid over a minimum of one year, or over an exact number of years. It is not possible to spread the cost over a period of months. The member can choose when payments will cease i.e. after one year, two years, three years etc., but they must cease before the member’s normal retirement age (NRA). Those members who are a year or less from their NRA, or those members over their NRA but under age 75, may only pay by means of a one-off lump sum.

After getting the quote, and the member wishes to proceed, they must print the application form from the website and submit it to you to process.

When you receive a signed election form from a member, your payroll must take the following into consideration before setting up the deductions against their pay:

Check that the information on the form is correct and that the member can afford the monthly deduction from their pay – if there is a problem at this stage, please see Regular Contribution and Lump sum sections below for information on how to proceed;
Check that the member can afford the one-off lump sum payment deduction from their pay – if there is a problem at this stage, please see Regular Contribution and Lump sum sections below for information on how to proceed;
Check that you have agreed to pay employer contributions, such as with SCAPC, and indicate your agreement to validate the application form;
Once the form has been validated, by signing and dating the form, you must forward it to your payroll who need to apply the deduction from the members pay as additional contributions – APC; and
If you have agreed to pay contributions, such as the SCAPC, then your payroll will need to ensure the employer deductions are made.

The member’s completed, validated, and actioned APC application form for the purchase of ‘lost’ pension, should then be posted to Southwark Pension Services using the address on their contact details page.

Your payroll department must ensure the additional contributions are paid, together with the normal contributions, each month to Southwark Pension Services by the 19th of the month following the deduction – they must also be recorded correctly on the monthly return. Read Section 9 – LGPS monthly contribution payments and returns for more.

If the member has elected to buy the ‘lost’ pension by regular monthly contribution payments from their pay, the deductions should commence at the start of the next available pay period after the election unless:

The pay and section information in the application does not match that originally supplied by you and/or the amount of pension to be purchased and/or the share of contribution to be met by you as the employer, is not the same as that in the written agreement from you;
Considering the member’s pay history, it suggests that the amount to be deducted per pay period cannot be reasonably deducted from the member’s pay; or
You take the view that spreading payments would be impracticable and request that payment is made by lump sum.

If (1) above applies:

You should, within a reasonable period of time, inform the member that the application has been rejected, provide the reasons for that rejection, and inform the member that they may submit a new application based on the correct information.

If (2) above applies:

You should, within a reasonable period of time, inform the member that the application has been rejected, provide the reasons for that rejection and inform the member that they may submit a new application based on an amount to be paid per pay period that would be reasonable, given their pay history, or that they can submit a new election to pay by lump sum. To assist the member, you should provide a quote for the cost of buying the ‘lost’ pension by lump sum in line with the details of the member’s original request.

If (3) above applies:

You should seek agreement from the Southwark Pension Services, that making deductions from payroll would be impracticable. You should, within a reasonable period of time, notify the member that payment will need to be via lump sum and provide a quote for the cost of buying the ‘lost’ pension by lump sum in line with the details of the member’s original request.

If the member has chosen to pay by lump sum, they must state on the application form if they will be making the payment directly to the Southwark Pension Fund, or it will be via a deduction from their next available pay.

If by direct lump sum:

You must issue the validated and signed application form to Southwark Pension Services who will check the information and inform you of its decision within a reasonable period of the information being received.

If the application is accepted them they will request payment from the member (and from the employer). They will also remind the member to claim any tax relief due on the payment from HM Revenue Customs via their self-assessment tax return.

If the application for direct payment is rejected, Southwark Pension Services will provide the reasons for that rejection and inform the member. If any decision is delayed due to action or inaction by the member and the member passes a birthday which causes the costs of the purchase to change, the member must submit a new application.

If paid by deduction from pay:

You should notify the member that the application has been accepted and deduct the payment from the next available pay period unless:

The pay and section information and/or the amount of pension to be purchased and/or the share of contribution to be met by you in the application does not match that originally supplied by you; or
After considering the member’s pay history it is such that the lump sum amount cannot be reasonably deducted from the member’s next available pay or any forthcoming pay.

If (1) above applies:

You should, within a reasonable period of time, inform the member that the application has been rejected, provide the reasons for that rejection and inform the member that they may submit a new application based on the correct information. However, if any decision is delayed due to action or inaction by the member and the member passes a birthday which causes the costs of the purchase to change, the member must resubmit their application.

If (2) above applies:

You must, within a reasonable period of time, notify the member of your decision together with the reasons to reject the application. However, if any decision is delayed due to action or inaction by the member and the member passes a birthday which causes the costs of the purchase to change, the member must submit a new application.

Your payroll department must ensure the lump sum contribution is paid, together with the normal contributions, to Southwark Pension Services by the 19th of the month following the deduction – is must also be recorded correctly on the monthly return. Read Section 9 – LGPS monthly contribution payments and returns for more.

If a member elects to pay an APC by regular deductions and subsequently has a period of any of the following:

Sickness or injury on reduced contractual pay or no pay;
Child related leave (ordinary maternity, adoption or paternity leave, plus paid additional maternity, paternity or adoption leave, plus unpaid additional maternity, paternity, or adoption leave);
Absence due to a trade dispute;
Reserve forces service leave; or
Any other period of authorised leave of absence (including additional leave purchased by salary sacrifice).

Any APC/SCAPC contracts in place remain payable, unless the member elects to end the contract, with the exception that during a period of sickness or injury on no pay, the member contributions to an APC/SCAPC are deemed to have been paid but the employer must continue to pay the employer contributions to a SCAPC.

Any pre-existing APC / SCAPC contracts remain payable during any period of absence due to a trade dispute. Although the member is in receipt of no pay for the period of the industrial action, the employer contributions to a SCAPC remain payable. The member payments that were due to an APC or SCAPC should be deducted if there is enough pay in the period from which to deduct the payment. Otherwise, the member payment that was due will roll over as a debt to be recovered from pay upon return to work.

There may be cases where the member is aware that they will not be returning to work after, for example, a period of authorised leave of absence or unpaid child-related leave but wish to take out an APC to cover that ‘lost’ pension. In such cases the LGPS Regulations 2013 do not preclude the option of the member electing for a SCAPC to cover the ‘lost’ pension before they leave your employment.

The member should obtain the value of the Assumed Pensionable Pay (APP) for the period of ‘lost’ pension and elect to buy the ‘lost’ pension by making a SCAPC one-off lump sum payment direct to the Fund as they have no pay from which deductions can be made, and you would have to meet 2/3rds of the cost of the SCAPC.

If a member leaves employment before they have finished paying for their APC, then a pro rata calculation is made to work out how much of the original pension contract has been bought. It is not possible for the member to pay the unpaid additional contributions upon leaving early.

However, if the member is being retired on ill-health grounds and has been awarded Tier 1 or Tier 2 benefits, then all contributions will be deemed to have been paid and the full ‘lost’ pension being bought will be added to their pension account.

Please note that if the member retires early due to redundancy, efficiency or early voluntary retirement any additional pension being purchased by the member will be reduced (even though their normal benefits may be paid in full because of protection).

Section 23 - Members buying lost LGPS pension