This section explains how to calculate final pay for leavers
Final Pay is the term for the pay used in the calculation of benefits in the LGPS.
The method for calculating Final Pay is set out in Regulation 8 to 11 of the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 (as amended) and SI 2008/1083.
Further information plus examples for various scenarios is available.
Regulation 10 provides protection for members who, due to a compulsory or voluntary move to a lower graded job, have experienced a drop in pay within 10 years of leaving. Further information on this subject is provided in a separate document.
As with all pension related matters, please do not hesitate to refer any queries to the pensions section for clarity where needed
1. Final Pay calculation – general
Ordinarily, a member’s final pay for an employment is their pensionable pay for as much of the final pay period as they are entitled to count as active membership in relation to that employment
A member’s final pay period is the year ending with the day on which he stops being an active member or, if it would produce a higher figure, either of the two immediately preceding years. (This is commonly known as ‘the best of the last three years’)
In the case of part-time employment, the final pay is the pay that would have been paid (for a comparable whole-time employment) as if the employment was full time
If a member has less than a years membership, the final pay is arrived at by scaling up the pay figure by 365/the number of days that count as membership within the final pay period. So, for example, if the member has only been in your employment for 198 days, you would take the full-time pensionable pay received for that period and divide by 198 x 365 to give the Final Pay figure needed. If the member has only received one pay rate during the period then simply use the whole time pay figure.
For help on calculating final pay please use our pensions final pay calculator.
For members leaving between 01/04/2008 and 30/09/2012 you need only to provide the portion of Final Pay that applies to the employment with you, this is calculated as in (4) above. The only exception to this is where Regulation 10 applies (please see separate information on this subject)
Where a member of the LGPS ceases active membership of the Scheme on or after 1 October 2012 (or a calculation is needed for Pension Sharing on Divorce purposes on or after that date) the final pay calculation under regulation 8 of the LGPS (Benefits, Membership and Contributions) Regulations 2007 is to include pensionable pay from membership of the LGPS with a previous employer (or employers) that relates to membership in:
(a) the 12 months prior to the date of cessation of membership with the current employer (or notional date of cessation for Pension Sharing on Divorce purposes), or
(b) the 3 years prior to the date of cessation of membership with the current employer (or notional date of cessation for Pension Sharing on Divorce purposes), if one of the previous 2 years pay is, excluding Pensions Increase, actually greater than the final year’s pay.
If a members full time equivalent pensionable pay has suffered a reduction in the ten years prior to retirement they may have protections under regulation 10. Please see separate document Reduction in Pay Protection – Regulation 10 Guide for further information on this subject.
For help on calculating a member’s pay under regulation 10, please refer to the Regulation 10 calculator.
Letter for Employers to send to Members re Regulation 10.
2. Sickness absence during the Final Pay period
Any reduction or suspension of a member’s pensionable pay during the final pay period because of absence from work owing to illness or injury is disregarded. The final pay must, in these circumstances, reflect the pay the member would have expected to receive had they not been on sick leave, and would include any pensionable extras (for example weekend enhancements) that they could have expected to receive. You may need to examine previous working patterns and apply this to current pay rates to reach a fair final pay figure.
3. Maternity / adoption / paternity leave during the Final Pay period
If a member has a period of paid maternity leave during this period, the Final Pay is to be calculated on the pay that would have been paid had the member not been absent.
Any period of unpaid maternity leave where the member has opted not to pay pension contributions for the unpaid leave, cannot be treated as ‘active membership’ even though they remain a scheme member throughout. The Final Pay would therefore be calculated by the number of days of active scheme membership during the final pay period x 365 as in section 1.(d) above.
The example below illustrates the Final Pay calculation for a member who, in her Final Pay Period, had a period of unpaid maternity leave.
Date of leaving: 31 December 2011
Final Pay period is 1 January 2011 to 31 December 2011
Unpaid maternity period: 1 to 31 July 2011
Days of active scheme membership in final pay period:334
|FTE Annual salary / weekly wage:||Period from:||Period to:||Months / weeks||Amount (£):|
Final Pay: £14,416.67 / 334 (days of active membership) X 365 (days in year – 366 if spanning leap year) = £15,754.74
4. Certificate of protection
You may have a member that leaves your employment and who had been issued with a ‘Certificate of Protection’ under the LGPS regulations prior to 1st April 2008. These can no longer be issued and have been replaced by the provisions of Regulation 10. However, the benefits of a Certificate of Protection can be of use to the member for a period of up to 10 years from the date of issue. Therefore you will need to take this into account when calculating the Final Pay. Please see the separate document Certificate of Protection of Benefits Guide for further information on the subject.
5. Absence due to industrial action
If a member who has days of industrial action during the final pay period elects not to pay pension contributions in order that those days can reckon as active membership, the calculation of the Final Pay must be adjusted as in 4 above.
Where a variable-time employee’s pensionable pay consists of or includes fees, his final pay is calculated as the sum of;
- the average of all such fees for the three consecutive years ending with the final pay period; and
- any sums falling within regulation 4(1) of the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 (as amended), other than fees, for the final pay period.
But, a member’s employer may consent to the final pay being calculated as the average of all such fees for any three consecutive years ending 31 March within the period of ten years ending with the last day he was an active member.