Pensionable Pay Increase Policy
The SHAPS Pensions Committee has a policy to review the annual salary increases awarded to members of the Scheme to ensure that employers are not seeking to increase member benefits by awarding above average salary increases.
In a final salary scheme a member’s benefits are calculated based upon their length of service and salary on leaving. If a member receives a significant pay increase just before retirement this inflated salary applies to their whole period of service, creating a liability in excess of that which has been funded for. If pay increases are awarded at a rate in excess of that assumed in the valuation this may have cost implications both for the Scheme and other participating employers.
Where a member has a salary increase in excess of an agreed multiplier of the Employers in Voluntary Housing (EVH) salary scale then The Pensions Trust will make enquiries with the employer to establish the reasons for the increase.
The Committee will consider the results and judge each case on its merits. The aim of this policy is not to penalise those employees who have genuine salary rises (for example as a result of taking on additional responsibilities, promotion, restructuring, etc) but to attempt to identify any unusual increases in benefits through inflating salaries, in particular when a member is near retirement. In such a case the past service reserve for the member would be insufficient to cover the cost of the benefits.
The Committee reserves the right to request an additional contribution from the employer representing the actuarial cost of the benefit accruing from the element of the salary increase which is deemed excessive.
In 2011 enquiries were made regarding all increases in excess of 3% and the results of the employer responses are currently being reviewed.