How much must I pay?
You must pay contributions of 5.0% of your Pensionable earnings. Of this, 1.5% of Pensionable earnings relates to the cost of providing benefits for your Dependants after your death. You may wish to purchase extra years of service or additional entitlements by paying additional contributions. See Added Years and Additional Voluntary Contributions for further details.
How much will your employer pay?
Your employer will make contributions at a level agreed with the Trustee and which is expected to provide enough funds to pay the promised level of benefits having taken advice from the Scheme Actuary and in accordance with any relevant legislation.
Where a deficit arises, your employer would be required to pay additional contributions to make good this deficit. To the extent that your employer has a contract with the Lead Company to pass on pension costs, the Lead Company effectively funds these contributions. The Plan’s funding is subject to normal actuarial variations due to market movements and differences between actuarial assumptions and experience. Legislation imposes obligations on employers to make good deficits, and Plan funding is monitored by the Pensions Regulator. The Pension Protection Fund also guarantees part of the benefits provided by the Plan in the event that an employer is unable (due to insolvency) to make the payments due under the legislation.
What earnings are pensionable?
As a general rule, only permanent items of pay and responsibility allowances are pensionable. If any other items of your pay were pensionable in the CPS they will also be pensionable in the Plan. The Lead Company may, from time to time, determine that other items of your pay will be pensionable such as overtime or bonus payments; you will be notified if any such determinations affect you. The Shift Pay Pension Plan in the CPS which had been used to provide pension benefits for Pensionable Shift Pay will also be replicated in the Plan ( see Shift Pay Pension Plan ).
If your salary reduces, you have the option of being treated as if you have two distinct periods of service, if this results in a larger ultimate pension.
If you are on reduced pay during maternity leave (and in certain other circumstances), your employer will make contributions based on the pay that you would have expected to have had if you had not been off work. In most cases, you will make your contributions based on your reduced pay.
Unless you have continuous service in the CPS and the Plan which commenced prior to 1 June 1989, your Pensionable earnings will be subject to a maximum, or Earnings cap. The Earnings cap will increase with the increase in the Retail Prices Index (RPI) and be calculated in accordance with the Plan rules.
Do I get tax relief?
You pay your contributions out of your gross pay (before income tax is taken out) so the cost to you is reduced. If you pay tax at the higher rate you save even more.
Dave earns £18,000 a year (£1,500 a month). Dave’s contributions to the Plan are £75 a month (5.0% of £1,500) but the net cost to Dave each month will only be £60.00 as he will get tax relief on these contributions. Dave pays tax at the basic (lower) rate so he will get tax relief at 20%.
Surinder earns £60,000 a year (£5,000 a month). Surinder’s contributions to the Plan are £250 a month (5.0% of £5,000) but the net cost to Surinder each month will only be £150 as she will get tax relief on these contributions. Surinder pays tax at the higher rate so she will get tax relief at 40%.
What about National Insurance?
Until 6 April 2016, the Plan was contracted out of the State Second Pension (S2P). This meant that the Plan had had to provide benefits at least equivalent to those which would have been provided by the S2P and, additionally, employees and employers paid lower National Insurance contributions. From 6 April 2016 the basic state pension and S2P were abolished and replaced by the new State Pension. On this date contracting-out for defined benefit schemes end and so the reduced National Insurance contribution rate no longer applies. From 6 April 2016 employees and employers pay their National Insurance contributions towards the new State Pension and contribute the full standard rate of National Insurance. For more information on the new State Pension click here.