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Additional pension contributions (APCs) were introduced in the new Local Government Pension Scheme from April 2014, and replace the previous additional contributions known as additional regular contributions for any elections made by members from 1 April 2014.

They are also the new method of making up lost pension for periods
of authorised unpaid leave or strike. There are 2 types of APCs:

Both types of APCs use the same factors for calculating the cost and are payable in the same way.

If the employee wishes to go ahead with a purchase of extra pension in either of the above circumstances, they will need to sign a contract to do so.

The employer and Peninsula Pensions (Pension Fund administering authority) must be notified of the amount to be purchased, the cash contribution, the period over which it is to be paid, the reason for the purchase and, if 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 pension for an active member only, there are no dependents’ benefits included.

APCs can only be payable up to the member’s normal pension age (NPA) at the latest.

If the lost pension being purchased by APCs is £2,000 or more, Peninsula Pensions (the administering authority), requires the member to get a medical form completed by their GP (undertaken at the member’s own expense) before agreeing to an APC election.

We can refuse an APC contract application if we are not satisfied that the member is in reasonably good health.

At the end of each scheme year or at the date the APC contract is terminated if earlier, the member’s active pension account is to be credited with the amount of additional 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, the remaining amount of additional pension is deemed to have been purchased and is credited to the member’s active account at the point of leaving.

Pension bought in this way will be reduced or enhanced if taken before or after the individual’s NPA under the 2014 scheme (except in cases where enhanced ill-health benefits are awarded, such as. Tier1 or Tier 2).

Members can choose to cease paying an APC at any time.

The member’s total pension account, including any amounts of 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).

Buying ‘lost’ pension

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 service for breaks from 1 April 2014 onwards. Instead an APC is needed to buy the ‘lost pension’ during that period.

For members with authorised unpaid absence for a period before 1 April 2014 the old method of paying the actual missed pension contributions remains in place for any part of the break up to 31 March 2014.

Where an employee 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, the employer shall pay 2/3rds of the cost of the APC (a shared cost APC).

If the election is made after the 30-day time limit, and the employer has not extended this time limit, the employee must pay the full cost.

An employee can commence an APC or Shared Cost APC (SCAPC) in this circumstance (buying ‘lost’ pension, for example) even if they are in the 50/50 section.

If in the 50/50 scheme, an employee can only buy all the ‘lost pension’ and not just part of it.

A member in the main section could buy just part of the lost pension, but, this would then be treated as buying ‘extra pension’ in the normal way and the period would not be included when calculating protections under the Underpin or Rule of 85 or when calculating final pay for benefits relating to pre-1 April 2014 membership.

Therefore, members with service before 1 April 2014 must purchase the entire lost pension if they wish to meet the requirements of the Local Government Pension Scheme (Transitional Provisions, Savings and Amendment) Regulations 2014 and maintain full protection for the Underpin and the calculation of Final Pay.

In relation to the Rule of 85 where the member has a period of absence with permission on no pensionable pay (otherwise than because of illness or injury, relevant child-related leave or reserve forces service leave) the period will not count towards the Rule of 85 unless the member makes an election to purchase the whole of the lost pension.

To buy pension ‘lost’ due to industrial action an employee can commence an APC in this circumstance whether they are in the 50/50 section or the main scheme. An employer is not required to pay towards the APC cost for ‘strike’ periods but can do so if they want to and have the necessary discretion in place.

Where there is more than one period of unpaid absence in a year the employee will no longer be required to make an election each time they return to work as the change to the regulations allowing the employer the discretion to extend the 30 days means that one election for the year’s absences is now possible.

The maximum period of ‘lost’ pension a member can buy is 36 months.

If the member does not return to work after a period of unpaid absence they cannot pay an APC for ‘lost pension’.

Where an employer is paying 2/3 of cost and employee 1/3 of cost this is split as:

  • Employee cost = Total cost ÷ 3 rounded up to the nearest penny
  • Employer cost = Total cost – employees cost

Employers are advised to provide members with details of buying ‘lost’ pension before their leave starts 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.

Calculation

For a member to use the online calculator to buy ‘lost pension’ they should first obtain a written statement from their employer of:

  • the total assumed pensionable pay lost during the period of absence
  • the share of the cost the employer will meet – for example, 2/3rds
  • confirmation of the section of the scheme the member was in during the period of absence (it may also be helpful if you, as the employer, confirmed to the member the reason for absence and the start and end dates of the period of absence)

Use the online APC calculator

Employers should provide the above information to members either on request or automatically at the end of the period of absence, remembering that the employee only has 30 days from returning to work to make their election unless the employer chooses to extend this time limit.

Using the above information, the member should obtain a quote for the cost of purchasing the lost pension from the national APC website or from the employer. The quote will use the lost pay and section information to determine the amount of pension which is to be purchased.

After getting the quote, the member should use the form on the national website to apply to their employer.

Procedure on receipt of election form

When an employer receives a signed election form from a member they must do the following:

  1. Check that the information on the form is correct. If it is not correct, see the guidance provided in the ‘Regular contribution’ and ‘Lump sum’ sections below for information on how to proceed.

2. Once the form has been validated, the employer must:

  • set up payroll deduction
  • send a confirmation form and copy of election form to us
  • send a confirmation letter to the member

Regular contributions

If the member has chosen to pay by regular contributions (the LGA calculator will prevent members who are one year or less away from their NPA or who are over NPA but under age 75 from selecting this option) the employer should commence deductions from the next available pay period and notify the member that the application has been accepted unless:

a) The pay and section information in the application does not match that originally supplied by the employer and/or the amount of pension to be purchased and/or the share of contribution to be met by the employer is not the same as that in the written agreement from the employer.
Action: the employer should, within a reasonable period, inform the member and us that the application has been rejected, provide the reasons for that rejection and inform the member that they should submit a new application based on the correct information.

or

b) The employer considers that the member’s pay history suggests that the amount to be deducted per pay period cannot be reasonably deducted from the member’s pay.
Action: The employer must notify us together with details of the member’s pay history and notify the member that the application has been referred to us for clearance of the amount to be deducted. The employer should wait for us to notify them of its decision before commencing any deductions.

Within a reasonable period, we must notify both the member and employer of its decision under (b) above, together with the reasons if the decision is 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.

The employee and employer contributions to APCs should be paid over to us by the employer within the statutory deadlines (or such earlier deadlines as we may specify).

Where the member opts for regular contributions the employer contributions must be made by regular contributions, not by lump sum.

Payments by regular contributions are made over a minimum period of one year or multiples of whole years. The employee chooses when they cease (so after 1 year, 2 years, 3 years, for example), but they must cease before the employee’s NPA.

It is not possible to spread the cost over a period of months. Those members who are a year or less from their NPA (or those members over their NPA but under age 75) may only pay by lump sum.

Lump sum

If the member has chosen to pay by lump sum they must also state on the application if they wish the payment to be made directly to Peninsula Pensions or through a deduction from the next available payroll.

If electing to pay by direct lump sum, we should check that the pay and scheme section information, the amount of pension to be purchased, and the share of contribution to be met by the employer matches that supplied by the employer and, if necessary, contact the employer to confirm the information provided.

We must check the above information and inform the member of its decision within a reasonable period of receipt of the information being received.

If the application is accepted, we should request payment from the member (and from the employer) and inform the member to claim any tax relief due on the payment from HMRC through their self-assessment tax return. Please note that tax relief will only be given on contributions up to 100% of a member’s UK taxable earnings (or, if greater, £3,600 to a ‘tax relief at source’ arrangement).

If the application is rejected, we should provide the reasons for that rejection and, if the rejection is because the pay and scheme section information and/or the amount of pension to be purchased and/or the share of contribution to be met by the employer does not match that supplied by the employer, we should inform the member that they should submit a new application based on the correct information.

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 the lump sum is to be paid by deduction from pay the employer should notify the member that the application has been accepted and deduct the payment from the next pay period unless:

a) The pay and section information and/or the amount of pension to be purchased and/or the share of contribution to be met by the employer in the application does not match that originally supplied by the employer.
Action: The employer should, within a reasonable period, 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.

or

b) The employer considers the member’s pay history to be such that the lump sum amount cannot be reasonably deducted from the member’s next pay period.
Action: The employer should notify us together with details of the member’s pay history and notify the member that the application has been referred to us for clearance of the amount to be deducted from pay. The employer should wait for us to clear the application before making the deduction.

We must, within a reasonable period, notify both the member and employer of their decision under (b) above together with the reasons if the decision is 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.

A lump sum deducted from the employee’s pay together with the employer share of the shared cost lump sum APC must be paid over to us by the employer within the statutory deadline (or such earlier deadline as we may specify).

APC payments during absences

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

  • 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
  • any other period of authorised leave of absence (including buying additional leave)

any pre-existing APC/SCAPC contracts 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 employee contributions to an APC/SCAPC are deemed to have been paid but the employer must continue to pay the employer contributions to a SCAPC.

It should be noted, however, that a member electing for 50/50 can continue to pay into or take out an APC arrangement or a shared cost APC arrangement providing it is to purchase an amount of pension lost due to a trade dispute or unpaid authorised leave of absence, including a period of unpaid additional maternity, paternity or adoption leave.

If the employee receives no pay, the employer contributions to a SCAPC remain payable, but the employee payments due to an APC or SCAPC which could not be collected rollover as a debt to be recovered from pay upon return to work.

Any employee APCs collected (but not those deemed to have been paid) must be added into the employee APC cumulative and any employer contributions to a SCAPC must be added into the employer SCAPC cumulative.

During any period of absence due to a trade dispute any pre-existing APC/SCAPC contracts remain payable. Although the employee is in receipt of no pay for the period of the industrial action, the employer contributions to a SCAPC remain payable.

The employee 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 employee payment that was due will rollover as a debt to be recovered from pay upon return to work.

During any other period of authorised leave of absence (including unpaid additional maternity, paternity or adoption leave) any pre-existing APC/SCAPC contracts remain payable.

Although the employee is in receipt of no pay, the employer contributions to a SCAPC remain payable but the employee payments that were due to an APC or SCAPC which could not be collected rollover as a debt to be recovered from pay upon return to work.

Leaving early

If an employee leaves employment before they have finished paying for their APC/SCAPC, a pro rata calculation is made to work out how much of the original pension contract has been bought.

If the employee is retiring on Tier 1 or Tier 2 ill-health grounds, then all contributions will be deemed to have been paid and full pension being bought will be added to their pension account.

It is not possible for an employee to pay the unpaid additional contributions on leaving early.

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

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