Section 8 - LGPS contributions guidance

Each employer within the Local Government Pension Scheme (LGPS) must pay contributions to cover the liability for their employees who are members of the Scheme. The rate of contribution to be paid by each employer is assessed by the Scheme actuary at the three-yearly valuation of the fund. You will be notified of your contribution rate by the Scheme actuary or by the administering authority team.

You will also need to pay pension contributions for all of your employees who are members of the scheme, and contributions are deducted from employee’s actual Pensionable Pay in accordance with the relevant banding.

If a member has more than one job, each job must be assessed separately for contribution banding purposes, this could mean that a member pays different percentages in each job.

You will need to inform Southwark Pension Services each time you have made a payment. You must complete the HK221 Monthly Contributions spreadsheet and post it to them using their address. Payment must be paid to Southwark Pension Services by the 19th of the month following the month the deduction was made i.e. contributions deducted from May pay, are to be paid by 19 June. Read Section 9 – LGPS monthly contribution payments and returns for more.

It is necessary for the employer to determine which part of an employee’s pay is pensionable when deducting pension contributions. The definition of Pensionable Pay in the LGPS Regulations is:

All the salary, wages, fees, and other payments paid to the employee, and any benefit specified in the employee’s contract of employment as being a pensionable emolument.

However, there are some exclusions as follows:

• Any sum which has not had income tax liability determined on it;
• Any travelling, subsistence or other allowance paid 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 a contract of employment;
• Any payment as an inducement not to terminate employment before the payment is made;
• Any amount treated as the money value to the employee of the provision of a motor vehicle or any amount paid in lieu of such provision (but see Transitional Regulations for protections);
• Any payment in consideration of loss of future Pensionable Payments or benefits;
• Any award of compensation (excluding any sum representing arrears of pay) for the purpose of achieving equal pay in relation to other employees; and
• Any payment made by the Scheme employer to a member on reserve forces service leave.

Note - non-contractual overtime was not pensionable before 1 April 2014 but became pensionable from that date. You may find the LGE Guides for HR and Payroll useful.

You may be considering a salary sacrifice scheme for child-care vouchers, or to purchase a computer under a home computing initiative scheme. In these cases, Pensionable Pay is the gross amount before the salary sacrifice is deducted. More information on how to allocate employees to bands can be found in the LGPS payroll guide in section 5.2.

Each year the member contributions are reviewed by the Government and adjusted for inflation. This normally causes the Pensionable Pay figure for each band of contributions to increase, and therefore your members may move bands each April.

Under the Regulations, the contribution band that a member is in, must be reviewed by you as their employer every April. This ensures that the review falls in line with the changes made by the Government each April.

In addition, when a member’s rate of Pensionable Pay changes, you need to determine when you will change their pension contribution rate (if necessary), according to the banding, e.g. at the time of pay change or the following April. You will need to inform the scheme members when their contribution rate changes and include details of how they can appeal any decision.

You must, therefore, have a written policy on how you will deal with this issue, and a copy of your policy must be provided to the Fund. Read Section 7 - Employer discretion policies for more.