Section 24 - Assumed Pensionable Pay (APP)

Therefore, if an employee moves to a period of reduced contractual pay, or nil pay as a result of sickness or injury, or commences relevant child related leave, for example:

• Ordinary maternity, paternity, or adoption leave;
• Paid shared parental leave;
• Any paid additional maternity; and
• Adoption leave.

You must notify your payroll, and Southwark Pension Services, of the date of the reduction in the case of sickness or injury, or the date the relevant child related leave began, as they MUST then apply APP to the members pay record.

The APP amount will normally be roughly equal to the amount the employee would normally be paid in the payment period i.e. each month, and you will use this amount to calculate the employer contributions.

The member will, as in the 2008 Scheme, pay contributions on any Pensionable Pay received during such periods of reduced pay or absence, but you as the employer will pay contributions on the amount of APP. This is a significant change that employers need to take into account.

APP does NOT apply during any part of relevant child related leave, for example ordinary maternity, paternity or adoption leave, or paid shared parental leave and any paid additional maternity, or adoption leave, during which the Pensionable Pay received is greater than the APP for that part of the leave period. On those days, the employee and employer pay contributions on the actual Pensionable Pay received.

APP also does NOT apply during any period of unpaid additional maternity, paternity or adoption leave, or unpaid shared parental leave available at the end of relevant child related leave; this is to be treated as unpaid leave of absence.

If the member was in the 50/50 section of the Scheme prior to dropping to nil contractual pay because of sickness, they must be put back into the main section from the beginning of the next pay period provided they are still on no pay at that time.

If the employee has a period of authorised unpaid leave of absence, or is absent due to industrial action, APP should not be added to the Pensionable Pay cumulative for that period of absence; this is to be treated as unpaid leave of absence.

The calculation of APP uses the three complete months, or 12 complete weeks, Pensionable Pay the member receives relating to that employment before the period of reduced contractual pay or nil pay due to sickness or injury, or relevant child related leave commenced, or the date the member commenced reserve forces leave.

If during the period of three months or 12 weeks Pensionable Pay used to calculate the APP, the member ceases one employment and is re-employed on a new contract of employment, the calculation of the value of the APP is based on the Pensionable Pay received in the new employment only using the number of complete weeks, or complete months, available in that employment to calculate the APP.

If an employee is on reserve forces service leave, (and, if eligible to be in the armed forces pension scheme during that period, has elected to remain a member of the LGPS), you will calculate APP whilst the reservist is on leave and drop that into the person’s Pensionable Pay cumulative on the payroll (i.e. into the main or 50/50 section) so the person continues to build up a pension as if they were still at work.

You would pay no employer contribution to the Fund on that APP.

You will need to notify the reservist and, via the reservist, the Ministry of Defence (MoD) of both the APP figure and the employee and employer contribution rate due on that amount, and the amount of any additional contributions being paid by the member (except where the MoD pay is less than the member’s Pensionable Pay as defined in the 2008 Scheme, and the additional contributions are additional regular contributions (ARCs), contributions to purchase added years, or additional survivor benefit contributions (ASBCs)).

The MoD would deduct the employee contribution and the additional employee contributions (if any) from the reservist and pay those contributions, together with the employer contribution, directly over to Southwark Pension Services or to the AVC provider, as appropriate. Note that any employer contributions to a SCAPC or SCAVC remain payable by the employer.

If you continue to pay the reservist some pay whilst they are on reserve forces service leave, neither employee or employer contributions are payable on that pay (because that pay is non-pensionable and contributions are payable on the APP figure) and the pay paid by the employer is not added into the person’s cumulative Pensionable Pay figure (i.e. into the main or 50/50 section Pensionable Pay cumulative) because the APP has been added into the Pensionable Pay cumulative.

APP ceases to accrue when a member ceases to be absent on reduced contractual pay, or nil pay as a result of sickness or injury; or on ceasing relevant child related leave (i.e. ordinary maternity, paternity or adoption leave, or paid shared parental leave and any paid additional maternity or adoption leave); or on ceasing reserve forces service leave.

APP will need to be calculated by you (your payroll) when an employer terminates an active member’s employment on the grounds of permanent ill-health with a Tier 1 or Tier 2 ill-health pension or an active member dies in service, or where a Tier 3 ill-health pension is awarded which is subsequently uplifted to a Tier 2 ill-health pension.

The APP figure is calculated in the normal way (see section 4.2 of the LGPS Payroll guide) but using the average of the Pensionable Pay for the 12 (weekly) or three (monthly) complete pay periods prior to the date of termination/death, including any APP credited in and relating to those pay periods, to which any regular lump sums paid in the 12 months prior to the date or retirement/death which the employer determines there is a 'reasonable expectation' would again have been paid to the member are added back into the annual rate of APP.

This APP figure is needed to calculate the amount of the enhancement to the benefits due under the LGPS. Where the Independent Registered Medical Practitioner certifies that the member was working reduced contractual hours during the relevant 12 (weekly) or three (monthly) pay periods wholly or partly as a result of the condition that caused or contributed to the ill-health retirement, the APP figure is to be calculated on the pay the member would have received during the relevant pay periods if they had not been working reduced contractual hours.

It is important that your payroll provider is able to understand the requirements and be able to calculate and provide the APP details to Southwark Pension Services on your monthly HK221 contribution returns. You should refer them to the LGPS Payroll Guide website for more.

A member goes onto reduced pay on 17 November. The APP calculation uses pay the member earned from 1 August to 31 October (the previous 12 weeks).

The member’s earnings for that period are:

• Earnings £1,500 in August;
• Earnings £1,500 plus bonus of £500 in September; and
• Earnings £1,500 plus £100 overtime in October.

Therefore, the APP calculation is:

£1,500 (Aug) + £1,500 (Sept) + £1,600 (Oct) = £4,600

£4,600 / 3 x 12 (times by 12 to annualise) = £18,400

The annual rate is then pro-rated for the period of reduced/no pay

E.g. if reduced/no pay period is 66 days:

£18,400 / 365 x 66 = £3,327.12

You must include APP in all monthly HK221s and year-end returns.