Assumed Pensionable Pay (APP) is a notional pay figure to be reported when an employee's pay is reduced because they are absent from work. This ensures that an employee's pension builds up as if they were at work receiving their normal pay.
Member contributions are based on what the member is actually paid. Employer contributions are based on what they would have been paid if they weren't absent.
Calculating APP
Employers can use one of two methods to calculate APP: average pay or current pay.
Average pay
Average pay is the last 3 full month’s pay, including any regular additional payments, but removing any one-off lump sum or non-regular payments and uprating the figure to a full year. The employer has the discretion to add back into the APP one-off or annual lump sum payments if they expect the APP to continue until the next time when such payments would be due.
Current pay
Current pay can be used if you consider the average pay figure to be lower than the pay the member would have received had they been at work.
APP for maternity or adoption leave
For the first 26 weeks of maternity or adoption leave, APP should be applied even if the member is receiving no pay.
For weeks 27 to 39, APP should be applied when a member is on paid additional maternity or adoption leave. But if the member is receiving no pay while on additional maternity/adoption leave then APP does not apply.
APP for sick leave
APP should be applied when the member is off sick, even when they are receiving no pay.
If you have an employee off sick for some time, there is a chance that the APP annual rate needs to be increased with the cost of living.
The annual APP rate should be adjusted if the reduced pay absence continues for a period that crosses two 31 March dates. If an employee is on long term sick leave, APP is adjusted at midnight on the second 31 March following the date APP commenced.
For example, an employee off sick continually from before 31 March 2022 until after 31 March 2023, should have had their APP annual rate increased by the Consumer Prices Index of 10.1% from 1 April 2023.
Tier 1 & 2 ill health retirement and death in service
Where an employee is retired on the grounds of tier 1 or tier 2 ill health, or an active member dies in service, an APP figure is needed for us to calculate the amount of enhancement added to the pension benefits.
APP for this purpose must be calculated using the employee's last three months’ pay, including APP if was applied in the period, and grossed up to an annual figure.
APP resources
The LGA has published bite-size training modules to help employers with APP.
Comprehensive guidance can be also be found in the LGA payroll guidance notes.