Local Government Pension Scheme in England and Wales - Access and Fairness
Authorised Absences Under 31 Days
Regulations 11 to 14 of the 2013 Regulations determine contributions during a member’s absence from work, depending on the type of absence. Authorised unpaid absences under 31 days in the LGPS are not automatically pensionable, with the exception of sickness, ordinary maternity and adoption and paternity leave. Instead, under regulation 16, when the member returns to work, they can choose to buy back the pension lost during the absence.
The government understands from the SAB that most members who take authorised unpaid absence do not buy back the pension lost. The process to buy back the pension is complex. It requires members to know the option is available, to decide that they want to spend their money on doing so, and to write to their employer making an application. An actuarial calculation is then needed to determine how much the member has to pay. All of this has to happen within the first 30 days of returning to work, for the employer to contribute 2/3rds of the cost. Most members do not go through this process, and pension is not accrued for the absence.
This process disproportionately penalises women, because it is mostly women who take such unpaid leave. Data from the SAB shows that across two example funds, 90% of unpaid leave is taken by women. It is a particular problem for LGPS staff in schools, who cannot take annual leave during term time. When a child is sick at short-notice or there are unexpected caring responsibilities, it appears it is more often a woman who takes the time off work, and so it is more often a woman who ends up with a gap in pensionable service.
The government proposes to return to the approach used for authorised unpaid absences in the LGPS before 2014, where authorised unpaid absences under 31 days were automatically pensionable for all members. Both employee and employer contributions would be made, based on the member’s lost earnings, and pension would continue to be accrued. The intent is to make catching up with small gaps in pensionable service the default option. Considering the demographics of members taking such leave, it is expected that this will lead to female members having fewer periods where no pension is built up.
The proposal is to amend regulation 11 to create a new regulation 11(5) in the draft SI.
For such unpaid leave under 31 days, there are two options for how the lost earnings could be calculated for the purpose of determining contributions for the period: with reference to assumed pensionable pay (APP), or the actual lost pay for the period.
The government recognises that in certain circumstances the use of one method over the other can result in a significantly different cost to the member. APP uses the average of the member’s pensionable pay in the three months preceding the unpaid leave and includes non-contractual pay such as overtime. Lost pay uses the actual pay as per the contract, and so does not include non-contractual pay. If there is a significant change in a member’s pensionable pay just before the period of unpaid leave, such as if a member goes part-time or receives a large promotion, or if the member works a significant amount of non-contractual overtime each month, then the choice between lost pay and APP can lead to significantly different outcomes.
The government’s preference is to use actual pay lost. This has been chosen because in most cases it would most closely match what the member would have paid had she or he not taken unpaid leave. Lost pay is the method already being used in the LGPS Scotland and should be easier for administrators. However, the government is keen to hear views from administrators. Both options have been included in the draft SI accompanying this consultation (amendments to regulation 21 and creation of a 21a).