LGPS Calculation if Pensionable Pay higher than Assumed Pensionable Pay

This update matters to UK Local Government Pension Scheme (LGPS) employers and payroll administrators because it changes how pension contributions are calculated during child-related leave, ensuring contributions reflect higher actual pensionable pay where applicable. The change reduces incorrect reliance on assumed pensionable pay (APP) alone and handles salary changes mid-leave by using daily proration to determine contribution bases.

Daily APP proration for child-related leave

APP (Assumed Pensionable Pay) proration now compares pensionable pay and APP on a per-day basis for child-related leave periods. The calculation uses daily pay amounts to determine whether pensionable pay exceeds APP and returns a consolidated result for a complete absence period.

  • For each day of qualifying child-related leave, the system checks pensionable pay against APP and uses pensionable pay when it is greater than APP.
  • Applicable to:
    • Ordinary maternity or adoption leave (normally weeks 1–26)
    • Paid additional maternity or adoption leave (normally week 27 -39)
    • Paid shared parental leave, paternity leave, and paid parental bereavement leave.
  • Daily comparisons are consolidated and returned as a single result for the complete leave period.
  • For any days or sub-periods where actual pensionable pay is greater than APP, contributions (employee and employer) are calculated on the actual pensionable pay instead of APP.
  • APP remains applicable for parts of the leave where actual pensionable pay is not greater than APP.
  • Comparisons use the normal rate of pensionable pay applicable during the absence, including allowances that form part of pensionable pay; retrospective arrears are not recommended to be treated as part of the 'normal' rate.
  • Proration across mid-period absences is handled so contributions are calculated per relevant sub-period (for example, different pay or allowances starting mid-leave).

Predefined rate definition for non-prorated full-time earnings

A new predefined rate definition LGPS Annual Full-Time Nonprorated Earnings provides the period-level salary data used by the APP proration logic to determine daily pay amounts across salary-change periods.

  • Administrators must add the contributors for each regular earning that should be considered by the APP proration.
  • A corresponding calculation Value Definition of type Rate Amount must be created and attached to the Pension Calculation Factor element so the pension calculator can use the rate.

Updated Pension Formulas

A few LGPS formulas were updated so that the APP proration receives necessary absence and factor data, including end date handling for 26-week periods.

  • Formulas that affect absence-based pension calculations were updated to set absence type and factors for each absence date and to set the 26-week end date where applicable (ORA_HRX_GB_LGPS_ABS_PEN and ORA_HRX_GB_LGPS_ASG_ABS_PEN)
  • LGPS Calculator formula now supplies the APP Proration formula with required inputs for daily evaluation.
  • APP Proration formula contains the logic for child-related leave (use pensionable Pay when PP is greater than APP). The check for Pay and APP is done for each day and later consolidated and returned for a complete period).

When an employee is on child-related leave, the system compares actual pensionable pay with assumed pensionable pay (APP) and uses the higher value for contribution calculations where applicable, improving accuracy of employee and employer contributions. The daily proration reduces errors during salary-change periods and ensures contributions reflect actual pay patterns.

Steps to enable and configure

Follow these steps to enable the feature:

  1. To work with this new functionality you have
    1. Either to create a new LGPS main pension element or
    2. To do the formula changes manually as described in Pensionable Pay higher than Assumed Pensionable Pay (document  KB875080).
  2. With this release, we deliver a new Rate Definition “LGPS Annual Full-Time Nonprorated Earnings”. This rate definition is created to get the period of salary change. It is called in the APP Proration formula where you get the pay of each day compared with APP.
    1. In this Rate Definition, add the Rate Contributor of type Rate Definition for all regular earnings that are to be included in the calculation.
    2. The Periodicity should be set to Annually but there is no need to check the Return Full-Time Rate
  3. Create a new Calculation Value Definition to include the seeded Rate Definition (the Calculation value Definition should have the retrieval date as Effective date and not as Date Earned).
  4. Attach this Calculation Value Definition to the LGPS Calculators Element with Calculation Step = Rate Amount.
  5. Run the 'Generate HCM Rates' flow before running payroll so rates are available before calculating the payroll.

Tips and considerations

  • This change only applies to the listed child-related leave types; paid neonatal care leave is not supported by these changes.
  • Because pay versus APP is evaluated daily, periods with salary changes will be handled correctly when the new rate is configured; failing to add the rate will prevent accurate daily proration.
  • Ensure Generate HCM Rates is run after adding rates and before payroll processing; otherwise pension calculations may use incomplete rate data.
  • The updated logic supersedes prior unpaid-leave special-case handling for these child-related leave scenarios.
  • This change is specific to LGPS rules: it does not apply to other pension schemes unless they have the same rule.
  • The comparison uses the normal rate of pay applicable during the absence; adding retrospective arrears into that 'normal' rate is not recommended and may affect results.
  • Administrators should verify that allowances intended to be pensionable are correctly marked so they are included in the actual pensionable pay used for comparison.