Correspondence

Circular 002/2013: amendments to police pension scheme

Updated 22 June 2018

1. This circular advises recipients of the Police Pensions (Amendment No. 3) Regulations 2012 which implement amendments for (a) a new voluntary exit scheme and (b) automatic enrolment.  It also advises of the Police Pensions (Amendment No. 2) Regulations 2012 which implement amendments to regulation A19 and an amendment to allow a senior police officer to defer payment of a pension until the officer reaches normal minimum pension age.  The Circular also provides some information on the pension earnings cap.
   Voluntary exit scheme.

1. Voluntary exit scheme

1. It is for chief officers and Police and Crime Commissioners (PCCs) to decide whether to run a voluntary exit scheme in their force and to determine, within the terms outlined below, what criteria for eligibility to apply are appropriate. If a scheme is run, it is for those officers who fall within the criteria of those eligible to apply to decide whether the terms of the offer are right for them. Only if both sides agree to the terms and are satisfied that they are suitable should the exit proceed.

2. The Association of Chief Police Officers (ACPO) has produced guidance for forces considering running a voluntary exit scheme. The determination setting out the level of compensation is annexed to this Circular.

The level of compensation and the rate at which it accrues

1. For those below their pension age on their final day in service: 1 month’s pay for every year of service up to a maximum of 21 months’ pay. For those above their pension age but with less than thirty years’ service on their final day in service: 1 month’s pay for every year of service up to a maximum of 6 months’ pay. No compensation payments are available to those who have built up full pensionable service  (30 years for Police Pension Scheme 1987, 35 years for New Police Pension Scheme 2006).

1.1 High pay threshold

5. A high pay threshold is set at the level of six times the median earnings figure provided by the Annual Salary Hourly Earnings (ASHE) ‘Private Sector Annual Pay: Gross’ (full-time earnings) table. The most recently available figure at the time of publication of this Circular is £25,240, which set the threshold at £151,440. The figure should be updated where appropriate each year following publication of the ONS Annual Survey of Hourly Earnings. All those earning more than the threshold (on a full-time equivalent basis) will be deemed to be earning the threshold figure for the purpose of calculating their compensation payments.

1.2 Early access to pension

1. For most police officers, the minimum pension age is the same age at which they could receive a normal, unreduced pension anyway. In these circumstances the option of early access to pension is not available.

2. However, there is a small group of officers for whom the minimum pension age is below the age at which they could receive a pension: those at the rank of inspector and above in all forces other than the MPS who are aged over 55 with less than 25 years’ service.

3. Officers within this group with two years’ qualifying service can draw their pension early. The compensation payment can be sacrificed to minimise actuarial reduction. If the compensation payment is not enough to meet the full cost of buying out the pension reduction then it is at the discretion of chief officers, working with their PCCs, whether to top up the compensation payment to meet the full cost of buying out the reduction. If the police force does not pay, the officer must pay the difference themselves.

1.3 Part-time working

1. For the calculation for part-time officers’ compensation, length of service would be based on actual hours worked and pay would be the full-time equivalent salary.

2. The maximum compensation that an officer who has worked part-time in the last three years could receive would be scaled back relative to the maximum for a full-time officer, taking into account the reckonable service of the part-time officer. This would be to ensure that part-time officers do not receive disproportionately more than full-time officers.

1.4 Re-employment in the Police Service

1. Officers receiving compensation payments will be required to undertake to make pro rata repayments if subsequently re-engaged in a paid role within the police service (whether that be as a police officer or otherwise) within the lesser of (a) six months and (b) the notional period of the compensation payment.

1.5 Eligibility to apply

1. Chief officers, working with their PCCs, would have discretion to decide what additional criteria are appropriate to determine which officers should be eligible to apply. Forces will, of course, be expected to give due regard to the equalities impact of any criteria that they deploy.

13. The following officers will not be eligible for the scheme:

• those going through any misconduct proceedings  (note that this covers the period between the allegation of misconduct coming to the attention of the appropriate authority and the misconduct proceedings being concluded)  or who have been found guilty of gross misconduct in the previous 12 months before the voluntary process is initiated

• those who have reached stage 3 under unsatisfactory performance procedures (UPP) in the previous 12 months before the voluntary process is initiated; and
• those who have built up full pensionable service, who could retire with a full pension or be required to leave under the powers provided by Regulation A19.

1. The presumption should be that those found guilty of misconduct short of gross misconduct should also not be eligible for the scheme. However, there may be cases in which an officer has been found guilty of a less serious incident of misconduct where chief officers working with their PCCs feel it would be acceptable to offer the officer the opportunity to leave under voluntary exit arrangements. They are able to use their discretion in this respect.

15. If an officer is excluded from a voluntary exit scheme because he or she is under investigation for misconduct and he or she is then cleared of misconduct or gross misconduct, chief officers working with their PCCs have, for a period of 30 days following the conclusion of the misconduct proceedings, the discretion to offer that officer the opportunity to apply for a voluntary exit.

16. If an officer is excluded because he or she is under investigation for misconduct and he or she is then found guilty of misconduct short of gross misconduct then the presumption should be that the officer is not eligible for the scheme. However, if chief officers working with their PCCs feel that it would be acceptable to offer the officer the opportunity to leave under voluntary exit arrangements then, for a period of 30 days following the conclusion of the misconduct proceedings, they can use their discretion in this respect.

17. If an officer is excluded because he or she is awaiting a stage 3 UPP meeting for suspected gross incompetence and it is decided at the hearing that the officer’s behaviour did not constitute either gross incompetence or unsatisfactory performance, chief officers working with their PCCs have, for a period of 30 days following the meeting, the discretion to offer that officer the opportunity to apply for a voluntary exit.

1.6 Tapering

1. The maximum compensation that can be paid to a member over pension age is six months’ pay. To avoid a “cliff edge” at pension age compensation for those approaching pension age will be tapered.

19. The maximum compensation payable will be the lesser of:

• the normal maximum for those under pension age; and
• the number of months until pension age, plus six months.

Any part months will be rounded to the nearest full month.

20. A similar pattern of tapering will apply to those approaching thirty years’ service, to reflect the fact that those with thirty years’ service are not eligible for any compensation payment.

21. In general, tapering will work so that every month away an officer is away from reaching his or her pension age, he or she will be entitled to another month’s pay in addition to the 6 months those who have reached pension age are entitled to (up to the maximum tariff he or she is eligible for).  There is also a special taper as officers get close to full pensionable service: for every month away an officer is away from reaching full pensionable service, he or she will be entitled to a month’s pay as compensation (again, up to the maximum tariff he or she is eligible for). This reflects the fact that officers with full pensionable service are not entitled to compensation payments.

22. Part-time officers’ compensation payments are subject to pro-rating.

1.7 Notice period

1. Exits under the scheme will be subject to three months’ notice. Notice will commence from the date the officer signs the agreement to depart.

1.8 Definitions

1. Pension age. For the purposes of the voluntary exit scheme, the pension age is the age at which the individual would be eligible to receive their pension assuming that they left the service on the agreed date for voluntary exit.

25. Pay. Pay will normally be determined as the full-time rate of pensionable pay at the last day of service. If the selection criteria used by a force are such that officers currently not receiving pay are eligible for voluntary exit - e.g. if they are on a career break or longer term sick leave - then the compensation payment should be calculated on the basis of their pay they would have been entitled to had the period of unpaid leave not been taken (in much the same way as average pensionable pay is calculated).

1.9 Worked examples

1. The same rank and salary has been used for most of these examples to enable easy comparison of the different situations.

1.10 Officers not yet able to receive a pension

i. Constable with 11 years’ service, aged 37; earning £36,000.
Compensation payment of 11 months’ salary = £33,000. (£3,000 a month)

ii. Constable with 23 years’ service, aged 45, earning £36,000.
Compensation payment of 21 months’ salary = £63,000. (£3,000 a month)
Limited by the maximum of 21 years.

iii. Constable with 20 years’ service, aged 54; earning £36,000.
Compensation payment of 20 months’ salary = £60,000. (£3,000 a month)

iv. Constable with 19 years’ service, aged 59 and 6 months; earning £36,000.
Compensation payment of 12 months’ salary = £36,000. (£3,000 a month)
Limited by tapering as near pension age (60).

v. Constable with 26 years’ service, aged 47; earning £36,000.
Compensation payment of 21 months’ salary = £63,000. (£3,000 a month)
Limited by the maximum of 21 years.

vi. Constable with 26 years’ service, aged 49; earning £36,000.
Compensation payment of 18 months’ salary = £54,000. (£3,000 a month)
Limited by tapering as near pension age (50).

vii. Constable with 28 years’ and 5 months service, aged 47; earning £36,000.
Compensation payment of 19 months’ salary = £57,000. (£3,000 a month)
Limited by tapering as near maximum pensionable service (30 years).

viii. Constable with 28 years’ and 5 months service, aged 49; earning £36,000.
Compensation payment of 18 months’ salary = £54,000. (£3,000 a month)
Limited by tapering as near pension age (50).

ix. Chief Constable with 20 years’ service, aged 45, earning £160,000.
Compensation payment of 20 months’ salary = £252,400. (£12,620 a month)
Limited by the high pay threshold of £151,440.

1.11 Officers able to receive immediate pension on leaving

x. Constable with 25 years’ service, aged 50; earning £36,000.
Compensation payment of 6 months’ salary = £18,000. (£3,000 a month)

Limited by the maximum of 6 months’ salary as able to receive immediate pension.

xi. Constable with 20 years’ service, aged 55; earning £36,000.
Compensation payment of 6 months’ salary = £18,000. (£3,000 a month)

Limited by the maximum of 6 months’ salary as able to receive immediate pension.

xii. Constable with 5 years’ service, aged 55; earning £36,000.
Compensation payment of 5 months’ salary = £15,000. (£3,000 a month)

Limited by the number of years’ service (rather than the ability to receive immediate pension).

xiii. Chief Inspector (non MPS) with 20 years’ service, aged 60; earning £54,000.
Compensation payment of 6 months’ salary = £27,000. (£4,500 a month)

Limited by the maximum of 6 months’ salary as able to receive immediate pension.

xiv. Commander (MPS) with 20 years’ service, aged 57; earning £96,000.
Compensation payment of 6 months’ salary = £48,000. (£8,000 a month)

Limited by the maximum of 6 months’ salary as able to receive immediate pension.

xv. Constable with 30 years’ service, aged 48; earning £36,000.
Compensation payment of 0 months’ salary = £0.

Limited to zero as able to receive full immediate pension.

1.12 Officers with part-time service

xvi. Constable with 10 years of full-time service and then 10 years of part-time service (0.5 full-time equivalent (FTE)), aged 45, FTE salary £36,000

Reckonable service (“A” in paragraph 5 of draft determinations) =
10 for period of full time service + (10 x 0.5 =) 5 for period of full time service = 15 years

Reckonable service if officer had worked full-time throughout (“B” in paragraph 5 of draft determinations) = 20 years

Officer is below pension age and tapering does not apply. Therefore, compensation is the lesser of:

1) 1/12 x officer’s pay x (A/B) x 21
= 1/12 x £36,000 x 15/20 x 21
= £47,250

2) 1/12 x pay x reckonable service
= 1/12 x £36,000 x 15
= £45,000

Therefore, compensation is £45,000.

xvii. Constable with 24 years’ service of which some was full-time and some part-time (including some part-time in the last three years), totalling 21 years’ reckonable service, aged 45, FTE salary £36,000

Officer is below pension age and tapering does not apply. Therefore, compensation is the lesser of:

1) 1/12 x officer’s pay x (A/B) x 21
= 1/12 x £36,000 x 21/24 x 21
= £55,125

2) 1/12 x pay x reckonable service
= 1/12 x £36,000 x 24
= £72,000

Therefore, compensation is £55,125.

In this example, the maximum compensation the part-time officer can receive is scaled back relative to the maximum for a full-time officer, taking into account the reckonable service of the part-time officer. This is to ensure that the part-time officer does not receive disproportionately more than a full-time officer on the same full-time equivalent salary.

2. Automatic enrolment

27. Under the Pensions Act 2008, employers must offer a qualifying pension scheme. In common with the other public service schemes, the police schemes  meet the conditions specified. All eligible officers not currently contributing to the police pension scheme will be automatically enrolled on their force’s automatic enrolment/staging date. Officers can choose to opt out of the scheme once they have been automatically enrolled. Employers have a duty to automatically re-enrol workers who have opted out back into the scheme every three years and whenever they achieve eligibility under the legislation. 

28. Reformed pension arrangements from 2015 will cater for the requirement and after that date anyone who needs to be re-enrolled will go into the new (2015) scheme. There was therefore a requirement to cater for the transitional period. This potentially goes beyond 2015, as a significant proportion of police officers will stay in the existing schemes under the transitional protection arrangements. However, if a member opts out during the time he or she is covered by transitional protection arrangements, that member will ordinarily lose their protection. So in practice these amendments are needed from the first enrolment staging date (January 2013) to March 2015.

29. The Police Pensions (Amendment No. 3) Regulations 2012 amend the 2006 Regulations so as to ensure compliance with the requirements prescribed by the Pensions Act 2008 and the Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 (“the 2010 Regulations”) with regard to arrangements the employer must make in respect of automatic enrolment and re-enrolment of a job-holder in a qualifying scheme. The amendments also ensure the Scheme complies with other arrangements prescribed by the Pensions Act 2008 and the 2010 Regulations by which a jobholder or worker may join and leave a qualifying pension scheme.

30. In particular, in the Police Pensions Regulations 2006:

30.1 Regulation 6(2)(b), which prevents the Regulations applying to an officer who has rejoined a police force having retired with at least 30 years’ service accrued in the old police pension scheme, is revoked.

30.2  Provision is added to Schedule 2 with the effect that an officer in this position is unable to accrue further service in the new police pension scheme. There is a 35 year limit on the service that can be accrued in the new scheme, and, because of the differences in the design of the two schemes, 30 years’ service in the old scheme equates to 35 years in the new scheme.

30.3 Provision is added to regulation 9 to the effect that automatic enrolment or re-enrolment under the Pensions Act 2008, or exercise of the right to opt in under that Act, has the effect of cancelling an election by a police officer to cease paying pension contributions.

30.4 The restrictions on re-joining the new police pension scheme in regulation 9(5), on the basis that the police officer has already opted out of the scheme and opted back in, or that the officer has not been medically examined to see whether they should be eligible for awards payable on permanent disablement, are removed.

30.5 As a consequence of the last change, provision is added to regulation 8 to require a police officer who re-joins the scheme to submit to a medical examination after re-joining, and to allow the force to find the officer ineligible for awards payable on permanent disablement either on the basis of the results of the examination or on the basis of a refusal to be examined (in the latter case, if the officer subsequently agrees to be examined, the force must revisit its finding on the basis of the results of the examination).

30.6 Regulation 9 is further amended to ensure that where a police officer opts out of the new police pension scheme within 3 months of being automatically enrolled or re-enrolled or opting in, the officer is treated as if he or she had not joined the scheme and his or her pension contributions are refunded in full.

30.7 Provision is also added to regulation 9 to allow the notice given by a police officer on opting out or in to the new police pensions scheme to be given in electronic form, in accordance with the provision for such notices in the regulations made under the Pensions Act 2008.

31. Following some uncertainty, the Pensions Regulator (TPR) has reached the conclusion that Police and Crime Commissioners (PCC) became new employers for the purposes of the employer duties under the Pensions Act 2008 with effect from 22 November 2012. The Employers’ Duties (Implementation) Regulations 2010 provide that new employers with PAYE income first payable between 1 April 2012 and 31 March 2013 will have a staging date for automatic enrolment of 1 May 2017. As PCCs became new employers from 22 November 2012, their first PAYE income will be payable between those dates, and accordingly PCCs have a staging date of 1 May 2017. It is open to a PCC to choose to bring forward their staging date to the staging date previously given for the relevant Police Authority but anyone wishing to do that must notify the Regulator with a month’s notice. TPR have noted that there will be a further transfer of employees to the Chief Constable and have said they will seek further confirmation regarding employer status before confirming the staging date for the Chief Constable. This paragraph applies to forces in England and Wales other than the Metropolitan Police and City of London Police, to whom the original staging dates apply.

32. If you need any further information about automatic enrolment, please contact TPR.  Visit the website: http://www.thepensionsregulator.gov.uk/automatic-enrolment.aspx or contact customer services: Phone:  0845 600 1011 or email:
customersupport@autoenrol.tpr.gov.uk 

3. Police Pensions (Amendment No. 2) Regulations 2012

1. These Regulations introduce amendments to the police pensions schemes in order to implement recommendations made in the Independent Review of Police Officer and Staff Remuneration and Conditions: Part 1 Report (Cm. 8024)

34. Regulation 3 of these Regulations amends regulation A19 of the 1987 Regulations and regulation 20 of the 2006 Regulations in order to require a police pension authority, when determining whether to require a police officer to retire in the general interests of efficiency, to take account of the need to retain skills and knowledge within the police force, and the performance of the individual officer. This implements recommendation 57 in the report.

35. Regulation 4 of these Regulations amends regulation B1 of the 1987 Regulations in order to allow a senior police officer to defer payment of a pension until the officer reaches normal minimum pension age. No such amendment is necessary in respect of the 2006 Regulations.  This implements recommendation 55 in the report.

4. Pension Earnings Cap

1. The Home Office were asked in the Police Negotiating Board for clarification of the circumstances in which the pension earnings cap applies and provided a brief explanation. This is set out below for reference.

37. Who does the earnings cap apply to?

Members of the NPPS are not subject to the earnings cap.

For members of PPS the earnings cap applies to all police officers who joined, or returned to, the Police Service on or after 1 June 1989, except those listed below.

Members who joined the scheme before June 1989 and subsequently:

• go, or have been, on secondment (fully expecting to return to the Police Service), provided they return or have returned without a break in service
• return or have returned after taking maternity leave or adoption leave, provided they rejoin or rejoined the PPS arrangements within one month of returning to work
• return or have returned after taking unpaid leave provided they rejoin, or rejoined, the PPS arrangements within one month of returning to work.