PECRS: Pensionability of Contractural Elements of Pay.

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A decision made (27/10/2006) regarding Public Employees Contributory Retirement Scheme (PECRS) Pensionability of Contractual Elements of Pay.

Subject:	Public Employees Contributory Retirement Scheme (PECRS) Pensionability of Contractual Elements of pay
Decision Reference:	MD-C-2006-0048		Exempt clause(s):	Public
Type of Report: (oral or written)	Written		Person Giving Report (if oral):
Telephone or e-mail Meeting?			Report File ref:	L:\Pens\CNT\POT\SEB
Written report – Title	Public Employees Contributory Retirement Scheme (PECRS) Pensionability of Contractual Elements of pay
Written report – Author (name and job title)	Maureen Byron Senior Human Resources Manager
Decision(s): To reject the application for contractual overtime, extra hours, and standby or call-out duties to be pensionable. The Law Draftsman is asked to amend the legislation in order to ensure clarity.
Reason(s) for decision: The Board acknowledged that if it acceded to the request it would become virtually impossible to distinguish between what was and wasn’t pensionable. The Board further decided to request the Law Draftsman amend the existing legislation to ensure clarity.
Action required: Law Drafting instruction.
Signature:		Date of Decision: 27 October 2006

PECRS: Pensionability of Contractural Elements of Pay.

STATES EMPLOYMENT BOARD Agenda Item

CHIEF MINISTER’S DEPARTMENT

PUBLIC EMPLOYEES CONTRIBUTORY RETIREMENT SCHEME

PENSIONABILITY OF CONTRACTUAL ELEMENTS OF PAY

Issue

The Public Employees’ Pension Scheme Joint Negotiating Group (JNG) have raised a concern that additional components to the normal working week, committed to in writing, such as extra hours, standby or call-out duties are deemed to be non-pensionable. Their concerns are based on a the outcome of the Newham London Borough Council v Skingle in which the Court of Appeal reversed the High Court’s decision so that in calculating benefits under the Local Government Pension Scheme (LGPS) overtime will be included if the member is contractually required to work it.

The JNG claim centres on the definition of ‘salary’ (see below under Background) in that if an element of pay is contractual it should be considered permanent and included as a part of the basic salary or wage, i.e. pensionable.

Background

Advice received from the Attorney General’s Office indicates that there are differences between the LGPS and PECRS Regulations. In relation to the statutory interpretation within PECRS there are points on either side and as such a drafting change may prove to be the most appropriate method of removing ambiguity.

The position on the pensionable status of overtime payments within PECRS is quite clear. In each of the sets of Regulations covering the operation of the Scheme, overtime payments are expressly excluded from the definition of pensionable salary.

Under the PECRS Regulations, 1989 it states:-

“A member shall contribute to the scheme an amount equal to five per cent of his salary.”

The interpretation of “salary” under the Regulations is:-

“salary” means the basic salary or wage of a member (disregarding overtime payments, other emoluments of a temporary nature and payments in respect of untaken leave) together with his pensionable allowances (if any)”

This position is further confirmed at Section B8 of the Manual Workers Joint Council Constitution & Schedule of Wages and Working Conditions which states:-

Guaranteed Payments for Pension Purposes

For the purpose of pension the guaranteed payments for the normal working week shall comprise:-

 Basic rate of pay

 Shift payments (or night rate, as appropriate)*

 Guaranteed Overtime (for those employees covered under the agreement of 1983)**

 First Aid Allowance

 Incremental Progression

*Currently shift pay, i.e. alternating, rotating and split shift payment, is treated as pensionable. If shift requirements cease use of the ‘Buy-Out’ policy and an added years approach for previous pension contributions ensures that employees do not lose out.

**The Guaranteed Overtime element relates to a specific group of employees employed prior to 1983 and protected under this agreement.

Discussion

The JNG are requesting that all contractual commitments be made pensionable, for example, standby/call out payments, and extra hours over and above the normal working week. These duties are generally performed outside of basic contractual hours and are not reckonable for pension purposes.

In addition, recent employment legislation dictates that all additional components must be included in the employment contract. For instance, the contract of employment for civil servants includes the following:-

“The Officer may be required to work additional hours. Recompense for any additional

hours worked over the contracted minimum hours will be in accordance with the relevant

overtime Agreement. (A copy is attached.) (Note: if there is a requirement for someone to

work shifts, undertake permanent overtime, standby duties or call out this must be

included in this paragraph and the relevant agreements attached.)”

Whilst the manual worker contract includes the following paragraph:-

“ The Employee may be required to work additional hours. Recompense for any additional

hours worked over the contracted minimum hours will be in accordance with the Manual

Worker’s Joint Council Constitution and Schedule of Wages and Working Conditions

Overtime Agreement. (Note: if there is a requirement for someone to work shifts,

undertake permanent overtime, standby duties or call out this must be included in

this paragraph and the relevant agreements attached.)”

The view of the JNG is that as shift pay is already recognised for pension purposes it is indefensible to exclude other equally contractual components.

Clearly, if the Board accedes to this request it may become virtually impossible to distinguish between what is and what isn’t pensionable. If the Board agrees to pensionable status for contractual extra hours, claims will appear for all additional hours, overtime, standby, and call-outs, as these are all contractual even though the nature of these payments is often variable. It would result in an additional administrative burden and the cost implications (as yet undetermined) for the employer could be considerable.

Recommendation

The Board is therefore recommended to reject the application for contractual overtime, extra hours, and standby or call-out duties to be pensionable.

The Law Draftsman is asked to amend the legislation in order to ensure clarity.

MB/CMD/HR/S10

1/6/06