Pensions

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Earnings cap FAQs

What is the Earnings Cap?
When was the Earnings Cap introduced?
Does the Earnings Cap still apply?
I am contributing to the 2008 section of the NHS Pension Scheme. Am I subject to the Earnings Cap?
How much of my service will be subject to the Earnings Cap?
Is the Earnings Cap still relevant to me?
I have an added years contract. How will the Earnings Cap affect me?
I am a GP provider who is subject to the Earnings Cap.  Who decides what elements of my NHS income should be pensioned first?
I am a GP buying added years which are subject the Earnings Cap and I also have an Officer post. Who decides which elements of my NHS income should be pensionable first?
Were there any exemptions from the application of the Earnings Cap?
I am a Secondary care doctor who is subject to the Earnings Cap. How will my pension benefits be calculated?
I am a Secondary care doctor who is subject to the Earnings Cap.  How is the virtual Earnings Cap calculated?
I am a Primary care doctor who is subject to the Earnings Cap. How will my pension benefits be calculated?
How will the cap be applied if I become a deferred member of the scheme?
How do I find out the level of the current Earnings Cap?
I am a Secondary care doctor who is subject to the Earnings Cap and I have applied for Fixed Protection. Could the increase in the Earnings Cap limit result in the loss of Fixed Protection?

 

What is the Earnings Cap?

The Earnings Cap imposes a limit on the amount of earnings that can be pensioned. This limits the amount of pensionable earnings on which pension contributions are paid and on which pension benefits are calculated.

 

When was the Earnings Cap introduced?

The Earnings Cap was introduced on 1 June 1989.  If you are contributing to the NHS Pension Scheme the cap will only apply to you if you first joined after 1 June 1989 or rejoined after 1 June 1989 following a disqualifying break of 12 months or more.

 

Does the Earnings Cap still apply?

The Earnings Cap was removed by HM Revenue and Customs on 6 April 2006, however occupational schemes such as the NHS Pension Scheme were allowed to continue using the cap beyond that date.

The Earnings Cap was removed from the 1995 section of the NHS Pension Scheme on 1 April 2008. If you were subject to the Earnings Cap prior to 1 April 2008 you will still be subject to a ‘virtual’ Earnings Cap for scheme membership up to and including 31 March 2008 only, including any added years which began before that date.

 

I am contributing to the 2008 section of the NHS Pension Scheme. Am I subject to the Earnings Cap?

No. If you joined the NHS Pension Scheme for the first time after 1 April 2008 you will not be subject to the Earnings Cap. However, if you were a capped member who was contributing to the 1995 Section and subsequently transferred to the 2008 section under the Choice Exercise you will continue to be subject to the Earnings Cap in respect of your pre 1 April 2008 capped service.

 

How much of my service will be subject to the Earnings Cap?

  • If you are contributing to the 1995 section of the scheme and joined the scheme for the first time after 1 June 1989 your service between the date of joining and 31 March 2008 will be subject to the Earnings Cap. Any added years purchased from contracts beginning before 31 March 2008 will also be subject to the cap
  • If you were contributing to the 1995 section before 1 June 1989 but took a break in pensionable employment of 12 months or more that ended on or after 1 June 1989, your service between the date of rejoining and 31 March 2008 will be subject to the Earnings Cap. Any added years purchased from contracts beginning before 31 March 2008 will also be subject to the cap

 

Is the Earnings Cap still relevant to me?

The Earnings Cap may still be relevant if you:

  • Joined or rejoined the 1995 section after 1 June 1989
  • Transferred to the 2008 section of the scheme under the Choice Exercise, having previously been subject to the cap in the 1995 section
  • Are contributing towards added years contracts which began before 31 March 2008 (please see below)

 

I have an added years contract. How will the Earnings Cap affect me?

If you joined or rejoined the scheme after 1 June 1989 and started purchasing added years before 1 April 2008 the added years contract remains subject to the Earnings Cap.

If you joined or rejoined the scheme after 1 June 1989 and started purchasing added years after 1 April 2008 the added years contract will not be subject to the Earnings Cap.

 

I am a GP provider buying added years which are subject the Earnings Cap . Who decides what elements of my NHS GP income should be pensioned first?

Capped GP Providers must decide for themselves what income falls under the cap and what income is in excess of the cap. If you elect for your fringe (i.e. OOH) income to be over and above that cap you must inform the relevant OOHs employer so that scheme contributions are not paid on those contributions.

 

I am a GP buying added years which are subject the Earnings Cap and I also have an Officer post. Who decides which elements of my NHS income should be pensionable first?

Because the officer income is generally automatically pensioned at source via payroll it will come first and therefore reduce the scope for pensioning your GP NHS income.

 

Were there any exemptions from the application of the Earnings Cap?

The Earnings Cap would not apply to you if you:

  • Left the scheme and subsequently rejoined after 1 June 1989 within 365 days of leaving.
  • Transferred to the Universities Superannuation Scheme (USS) before 1 June 1989 and subsequently returned to NHS pensionable employment before 1 June 1994.
  • Were subject to a compulsory transfer between the NHS and the Department of Health after 1 April 1996 and joined the Principal Civil Service Pension Scheme (PCSPS) as a result.  You would not be regarded as a new entrant and therefore would not be subject to the Cap unless you were subject to it before the move.
  • Were seconded to another employer and at the time of the secondment you had a definite expectation of returning to pensionable employment when the period of secondment ended.
  • Were engaged in other employment which was approved by the Secretary of State.
  • Were on unpaid absence from work and rejoined the scheme within one month of returning to work.
  • Had a break in service which was mainly or partly because of maternity leave and you rejoined the scheme within one month of returning to pensionable employment.
  • If you were undertaking an approved employment out with the NHS.

 

I am a Secondary Care doctor who is subject to the Earnings Cap. How will my pension benefits be calculated?

If your pensionable earnings exceed the virtual Earnings Cap then your pension will be calculated in two parts to take account of the capped and uncapped elements of your service. This is done in the following way:

  • Uncapped service will provide pension benefits calculated with reference to uncapped pensionable pay 
  • Capped service will provide pension benefits calculated with reference to the virtual Earnings Cap in the 365 days based on the reference pay period
  • The pension benefits for both of the above are then added together to give you your total retirement pension.

If your final pensionable pay is below the virtual Earnings Cap in the year of retirement, then all of your pension will be calculated with reference to uncapped pay.

 

I am a Secondary Care doctor who is subject to the Earnings Cap. How is the virtual Earnings Cap calculated in the reference pay period?

The virtual Earnings Cap limit is increased each tax year by the same percentage as the percentage increase in the Retail Price Index (RPI) or the nearest multiple of £600.00. If when you retire, your final salary is higher than the capped limit, then your capped service will provide pension benefits calculated with reference to the Earnings Cap during the 365 days of the reference pay period.

For example:

If you are in the 1995 section of the scheme and retire on 30 September 2014, and assuming your final years earnings were your highest, the Earnings Cap limit to be used to calculate your capped service would be calculated as follows:

Pensionable pay period 01/10/2013 – 30/09/2014

Step 1
Calculate the earning cap for the period 06/04/2014 – 30/09/2014 based on the Earnings Cap limit in tax year 2014/15:
£145,800 x 178 days/365 days = £71,102.47

Step 2
Calculate the earning cap for the period 01/10/2013 – 05/04/2014 based on the Earnings Cap limit in tax year 2013/14:
£141,000 x 187 days/365 days = £72,238.36

Step 3
Add the result of the above calculations together to arrive at the composite Earnings Cap figure:
£71,102.47 + £72,238.36 = £143,340.83

 

I am a Primary Care doctor who is subject to the Earnings Cap. How will my pension benefits be calculated?

In any year that your pensionable earnings exceed the Earnings Cap you will pay contributions up to the cap and the capped figure would be recorded on your dynamising sheet. Since 1 April 2008 the Earnings Cap only applies in respect of added years contracts which began before that date.

 

How will the cap be applied if I become a deferred member of the scheme?

 Your pension will be calculated in two parts to take account of the capped and uncapped elements of your service. This is done in the following way:

  • Uncapped service will provide pension benefits calculated with reference to uncapped pay. 
  • Capped service will provide pension benefits calculated with reference to the virtual Earnings Cap in the 365 days based on the reference pay period used
  • The pension benefits for both of the above are then added together to give you your total retirement pension.

 

How do I find out the level of the current Earnings Cap?

The current rates are available on relevant pension agency website.   The notional Earnings Cap for the period from 6 April 2014 to 5 April 2015 will be £145,800.00. 

 

I am a Secondary Care doctor who is subject to the Earnings Cap and I have applied for Fixed Protection. Could the increase in the Earnings Cap limit result in the loss of Fixed Protection?

If you have Fixed Protection your NHS pension is allowed to ‘grow’ annually by no more than the increase in the Consumer Prices Index (CPI).

The Earnings Cap limit increases each year in line with increases in the Retail Price Index (RPI). Historically RPI has produced a higher measure of inflation than CPI. 

Therefore if this continues and you are subject to the cap it is possible that benefit accrual may take place and fixed protection may be lost.  Please refer to the Lifetime Allowance FAQs for more information on fixed protection.