Contributions - Employees

Up until 31 March 1998, officers paid contributions at a rate of 6% of their pensionable pay and manual workers paid contributions at a rate of 5% of their pensionable pay. With effect from 1 April 1998, all new employees paid contributions at the 6% rate although manual workers paying 5% continued to pay contributions at the rate of 5% of pensionable pay whilst remaining in qualifying employment i.e. "manual" employment - not wholly APT&C (Administrative, Professional, Technical and Clerical) regardless of whether or not the employee is paid on APT&C pay scales.

Since 1st April 2008 this all changed. Any scheme member paying 6% on 31 March 2008 and continuing to pay contributions from 1 April 2008, now pays contributions in accordance with the following table:

Contribution Bandings from 1 April 2011 to 31 March 2012:

Band	Salary Range	Contribution Rate
1	£0 - £12,900	5.5%
2	Over £12,900 to £15,100	5.8%
3	Over £15,100 to £19,400	5.9%
4	Over £19,400 to £32,400	6.5%
5	Over £32,400 to £43,300	6.8 %
6	Over £43,300 to £81,100	7.2%
7	Over £81,100	7.5%

New Contribution Bandings from 1 April 2012 to 31 March 2013

Band	Salary Range	Contribution Rate
1	£0 - £13,500	5.5%
2	Over £13,500 - £15,800	5.8%
3	Over £15,800 - £20,400	5.9%
4	Over £20,400 - £34,000	6.5%
5	Over £34,000 - £45,500	6.8%
6	Over £45,500 - £85,300	7.2%
7	Over £85,300	7.5%

Contributions are deducted from pay before tax. This means that for an employee who pays tax at 20%, every £1 contributed to the scheme actually only costs 80 pence of net pay. There is also a further saving of 1.6% as the LGPS is contracted out of the State Second Pension (S2P) (formerly known as SERPS). It is important that contracted out national insurance contributions are deducted from scheme members' pay i.e. D rate National Insurance Contributions not A rate. Employees of State Pension Age should be set to C rate.

Everyone is entitled to receive the basic state pension, subject to the National Insurance contributions they have paid throughout their career, and any individual who pays national insurance contributions at the not-contracted-out A rate qualifies for a "top-up" to the basic state pension, from the State Second Pension (S2P). As previously mentioned, the LGPS is contracted-out of S2P. Instead of paying a higher rate of National Insurance contributions a member of the LGPS pays pension contributions in order to provide an alternative pension to that provided by S2P. The LGPS guarantees that the pension contributions paid will provide a LGPS pension at least equivalent to that provided by S2P and, in most cases, a good deal better than S2P.

Members of the Scheme between 6 April 1978 and 5 April 1997 accrued a Guaranteed Minimum Pension (GMP). The GMP is the minimum amount of pension that would have been paid by the additional part of the State Scheme (SERPS now S2P) had not-contracted-out National Insurance Contributions been made to the State Scheme instead of pension contributions being made to the LGPS.

A GMP becomes payable from State Pension Age and is split into 2 elements, pre 6 April 1988 and post 5 April 1988. The GMP is not an additional amount to the benefits paid by the LGPS but forms part of those benefits. All increases due on the pre 6 April 1988 GMP are paid by the Department of Work and Pensions (DWP) as part of the State benefit. Increases of up to 3% on the post 5 April 1988 are paid by the LGPS. Where the increase due is more than 3% the balance is paid by the DWP.

With effect from 6 April 2006 ("A" Day) a new tax system for all pension schemes, including the Local Government Pension Scheme (LGPS), was introduced. All previous tax rules and regulations have been replaced with a single set of rules giving pension scheme members greater choice and flexibility in how they wish to save for retirement. It is now possible for individuals to pay more towards their retirement and to save into more than one pension scheme at the same time. As a result of this change in tax rules the regulations governing the Local Government Pension Scheme were amended to take account of over-riding tax legislation.

From 6 April 2006, the requirement to limit member contributions to 15% of taxable earnings was removed and instead annual and lifetime allowances were introduced. The annual allowance means that in each tax year an individual can receive tax relief on contributions to one or more pension plans up to a total amount of the greater of:

• £3,600 gross, or
• up to 100% of relevant UK earnings (including employment income and self-employed income). Where more than the maximum contribution is paid into pension arrangements a tax charge will be due.

Those individuals who have the potential to go over the lifetime allowance will need to keep the value of their pension funds, from all sources, under review to assess the risks of incurring a lifetime allowance charge. It is important that members of the LGPS seek independent financial advice if they believe they may be in danger of exceeding the lifetime allowance when taking into account any other pension arrangements they may currently, or previously, have contributed to.

The annual and lifetime allowances for each year up to April 2010 are as per the following table:

Tax Year Beginning	Lifetime Allowance	Annual Allowance
April 2006	£1.50m	£215,000
April 2007	£1.60m	£225,000
April 2008	£1.65m	£235,000
April 2009	£1.75m	£245,000
April 2010	£1.80m	£255,000

The annual and lifetime allowances will be reviewed every five years commencing in 2010. These changes to the tax rules mean that individuals have the flexibility to increase their pension saving and to plan for their retirement. It is important to remember that it is all sources of pension income that have to be considered when calculating these allowances not just the benefits derived from membership of the LGPS. However, where individuals only have membership of the LGPS and do not contribute or have not contributed to any other pension arrangement either now or in the past, only a very small number of scheme members will be affected. Indeed, to put it in context, only employees earning more than £139,000 per annum with 40 years membership of the scheme will currently be affected. This is because the fund value of benefits has to be calculated by multiplying pension by 20 (i.e. any pension in payment after any lump sum commutation) and adding the amount of any lump sum retirement grant.

The annual allowance limits the amount of tax-privileged "savings growth" relating to an individual's pension benefits each year. Benefits in excess of the annual allowance will become subject to a tax charge. Each year (except the one in which they die or become entitled to all of the benefits from a pension arrangement) the growth in a scheme member's benefits (referred to as the "pension input amount"), must be compared to the annual allowance. It is worth noting that the onus to carry out these checks is on the individual and not the pension scheme administrators or the employer.

The pensions input amount for a tax year is the amount of the increase in the value of the member's benefits during the pensions input period ending in that tax year. The pension input period is 1 April to 31 March each year.

Testing Against the Annual Allowance (active members)

The pension input amount is determined in the LGPS by working out the accrued benefits at the beginning and the end of the pension input period, applying a formula and then working out the difference between the two.

The formula for calculating the pension input amount is:

[(10 x PE) + LSE] - [(10 x PB) + LSB]

where:

PE and LSE are the accrued pension and lump sum values at the end of the pension input period, and
PB and LSB are the accrued pension and lump sum values as at the beginning of the input period.

The result is then compared to the annual allowance for the tax year in which the pension input period ends. If the member has other pension arrangements then it is the total of all input amounts that is compared with the annual allowance.

ADDITIONAL EMPLOYEE CONTRIBUTIONS

There are currently six ways in which a scheme member can make additional contributions.

1 Additional Regular Contributions (ARCs)

2 Additional Voluntary Contributions (AVCs)

3 Free Standing Additional Voluntary Contributions (FSAVCs)

4 Shared Cost Additional Voluntary Contributions (SCAVCs)

5 Stakeholder Pension Scheme

6 Personal Pension Plan

A scheme members guide to increasing benefits is supplied as part of the welcome pack issued to new scheme members and is available to all members upon request.

Additional Regular Contributions (ARCs)

Since 1 April 2008 ARCs have replaced added years. A Scheme member can purchase additional LGPS pension by way of Additional Regular Contributions (ARCs). The amount that a member chooses to pay is calculated in accordance with guidance issued by the Government Actuary's Department (GAD). A member can purchase £250 of additional pension or multiples thereof up to a maximum of £5,000 and can also choose to provide survivors' pensions as part of their additional pension benefit, although the amount of ARCs will be higher in this case.

Should a member decide to pay ARCs they will have to state the length of the period (the ARC payment period) over which they wish to pay ARCs, although this must end before normal retirement age. A guide to increasing your pension benefits, which includes a form to complete requesting a personal quote, is available by clicking here.

As an alternative to paying Additional Regular Contributions (ARCs) within the LGPS itself, it is possible to pay Additional Voluntary Contributions (AVCs) to an approved company. Instead of increasing LGPS benefits, AVCs are used to build up a separate fund which eventually purchases an annuity and provides an additional income upon retirement. It is possible for a member to defer taking that annuity until, at the latest, age 75.

The maximum amount that an individual can pay into an AVC Scheme is 50% of their pay in any given pay period.

With effect from 6th April 2006 and the introduction of new tax rules, it is possible to take 100% of an AVC fund as a tax-free lump sum providing that it does not exceed 25% of the total lifetime allowance (including pension rights from all schemes).

It is also possible for a scheme member, under certain circumstances, to elect to convert an AVC Fund into LGPS membership. Since the implementation of the Local Government Pension Scheme (Amendment No.2) Regulations 2001, effective from 13th November 2001, the options available to scheme members have been amended. The scheme administrator will notify the member of the options available prior to the date that any decision has to be made.

Scheme members' can also increase dependant's benefits by paying AVCs.

The preferred supplier for AVCs is currently The Prudential Assurance Company Limited. They are bound, by regulations, to give the best and most up to date information. The benefit of paying AVCs in this manner is that there is a very small administration fee (currently 1% of contributions). This is because there are a number of scheme members who use this scheme which was set up specifically for members of the Berkshire Pension Fund.

AVCs are deducted from salary before tax and therefore tax relief is given immediately, at source. A scheme member can elect to cease paying AVCs at any time. AVCs are included when calculating lifetime and annual allowances.

Free Standing Additional Voluntary Contributions (FSAVCs)

Free Standing Additional Voluntary Contributions (FSAVCs) are exactly the same as AVCs except that the scheme member makes arrangements to use an alternative provider other than the one offered by the Berkshire Pension Fund. FSAVCs are not deducted from salary and the member has to make their own arrangements to pay over the contributions to their chosen provider and to claim the tax relief from HM Revenue & Customs. FSAVCs are included when calculating lifetime and annual allowance.

The member will almost certainly pay a higher administration charge than that paid to the Prudential AVC scheme.

Shared Cost Additional Voluntary Contributions (SCAVCs)

The LGPS Regulations 1997 introduced the Shared Cost Additional Voluntary Contribution Scheme (SCAVC) as an employer discretion. An SCAVC scheme is run in a similar manner to an AVC scheme, the main difference being that the employer makes a contribution in addition to the employee's contribution. The employer is allowed to make unlimited contributions. SCAVCs are deducted from salary before tax and therefore tax relief is given immediately, at source.

Stakeholder Pension Scheme

Various institutions such as banks, building societies and life assurance companies provide and administer Stakeholder Pension Schemes. Individuals can only pay into a Stakeholder Pension Scheme if, in at least one of the previous 5 tax years (excluding years prior to 2000/01), their pay has not exceeded the remuneration limit (£30,000) and they have not been a controlling director of a company. An "in house" Stakeholder Pension Scheme cannot be offered by the LGPS as all employees have access to the main scheme. Each individual must therefore make their own arrangements.

Personal Pension Plan

Benefits payable from a personal pension plan are determined purely by the contributions paid and the investment returns on those contributions. It has been possible, since 6th April 2001, for a member of the LGPS to contribute concurrently to a personal pension arrangement. Any employee choosing to do so should seek financial advice from a registered independent financial advisor.

Payment of Pension Contributions to the Pension Fund

Every employing authority must pay to the appropriate administering authority, on or before such dates falling at intervals of not more than 12 months as the appropriate administering authority may determine, all amounts from time to time deducted from the pay of their employees under the regulations.

There is a strict law now applied to the payment of pension contributions over to the Pension Fund. The Pension Fund must receive all employee contributions by the 19th day of the month following the end of the month in which the contributions were deducted. For example, the Pension Fund must receive contributions deducted from any pay received during September by the 19th of October. Employers who do not meet this deadline are breaking the law.

The Pensions Regulator (formerly OPRA (Occupational Pensions Regulatory Authority)) has the power to investigate employers who do not pay pension contributions on time. They can impose fines and, in serious cases, even take employers to court. The Pensions Regulator's statutory functions were set up under the Pensions Act 2004 and associated legislation. An annual return has to be made each year by all Pension Fund's which will assist the Pensions Regulator in assessing the level of risk to members' pension scheme benefits.

The Royal Borough of Windsor & Maidenhead, as administering authority to the Royal County of Berkshire Pension Fund, has a responsibility to check that these deadlines are met. Where contributions are not received by the 19th of the month, the administering authority has the right to report an employer to the Pensions Regulator within 30 days. If the employer has failed to make payment of contributions within 60 days from the 19th of the month, the administering authority also has the power to notify scheme members of their employer's failure to meet the required deadline. Where contributions are received by the 29th of the month, the Pensions Regulator does not need to be notified unless this situation has arisen on two other occasions in the last 12 months.

The Royal Borough of Windsor & Maidenhead now automates the process of completing contribution returns. On the first of each month, the person responsible for making contribution payments at your authority will receive an e-mail requesting contribution data relating to the previous months deductions and asking for the method of payment and the date that payment will be made.

Failure to make payments within the 19-day deadline may result in the Pension Fund reporting the employer to the Pensions Regulator. In such instances, the Pensions Regulator will consider the information available and where a genuine and honest mistake has been made, and steps are being taken to ensure that such a mistake is not repeated, no further action will be taken. Where the Pensions Regulator find that an employer has no good reason for paying contributions late, or that despite several warnings the employer continues to break the law, they will send a "statement of facts" to the employer for their comments before deciding whether or not to impose a fine.

There are some simple steps that can be taken to ensure that contributions are paid on time:

• Decide whose job it is to make payments of contributions to the Pension Fund and who will deputise when that person is absent
• Decide how contributions are to be paid, and if at all possible, pay them electronically via BACS or CHAPS
• Aim to make payment earlier than the legal due date
• Remember, money that is meant for the Pension Fund does not belong to the employer and is to be invested for the benefit of the scheme member

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