Employers' Guide
Section 20 – Arrears of contributions
Contents
1. Background 2. How missing contributions are identified 3. How TP issue Invoices 4. Employers' Responsibilities on receiving an Invoice 5. Retrospective Part-Time Elections 6. Overseas Teachers: Opt Out Forms 7. Interfund Transfers 8. Additional Guidance for LA Employers 9. Case Study1. Background
Under Regulation G7 (1) of the Teachers’ Pensions Regulations 1997, employers are under a duty to deduct employee contributions, and to remit both employer and employee contributions to TP within seven days after the end of each month. Where an employer does not do that and the employment subsequently becomes identified as pensionable, then arrears of contributions are due.
There are no time limits to your responsibilities under G7 (1), and, where you have not deducted and remitted contributions then the Teachers’ Pensions Regulations allow, under G7 (4) and (5), for the charging of interest – compounded with monthly rests - until the amount is paid. Interest is charged at the rate of 12% on amounts and contributions payable up to 31 March 2003, and 8% thereafter.
The purpose of this section is to explain how invoices for arrears of contributions in respect of pensionable employment are issued by TP and how employers can ensure that they do not suffer any financial penalties resulting from late payment.
Where TP identifying contributions have not been deducted correctly they will issue employers with invoices for arrears of contributions. These invoices must be paid within 28 days. Where payment is not received within this deadline, under the contract TP have with the Department, TP may issue new invoices which take into account recalculated compound interest, rendering the original invoice null and void.
Only in very exceptional conditions will the Department waive the interest which is specified in the Regulations. The Regulations do not allow for a lower level of interest to be charged.
Back to the top2. How missing contributions are identified
Missing contributions are identified in a number of ways.
- A teacher who receives their annual benefit statement, and queries a period of service which is not on their estimate. If this service was pensionable TP will generate an invoice once the exact service and salary details have been provided by the relevant employer.
- You may identify that a member has “missing” service and provide TP with the necessary service and salary details on request so that an invoice can be issued.
- HMRC inform TP that a teacher is paying National Insurance contributions at a rate which indicates that they should be a member of the TPS.
In all of these cases, TP will write to the employer to obtain service and salary details before issuing an invoice for the arrears of contributions. You will therefore be forewarned that an invoice may be issued as a result of that service and salary query.
Back to the top3. How TP issue Invoices
TP are under contract to issue invoices relating to arrears of contributions within five working days. TP issue invoices to designated contacts. Where, for example, no contacts exist in relation to independent schools the invoice will be addressed to the School Bursar. In the case of LAs, the default position in lieu of a designated contact is for invoices to be issued to the person providing the service and salary information. If you would like TP to issue invoices to a designated contact point then please email: tpcontributions@capita.co.uk.
Teacher with same employer when arrears identified
Where an employee is still working for you at the time “missing” service is identified and invoiced, you will be invoiced for both employee and employer contributions.
Teacher no longer with employer when arrears identified
The main exception is where an employee is no longer employed by you when the “missing” service comes to light and the invoice is issued. It is recognised by the Department that it could prove potentially difficult for you to recover the employee contributions from an ex-employee. TP will invoice you for the employer contributions (plus compound interest on the employer contributions only) and invoice the ex-employee for the employee contributions separately.
Back to the top4. Employers' Responsibilities on receiving an Invoice
You have 28 days from the date of the invoice in which to make payment and to avoid the possibility of further interest being added to the amount. TP will issue a prompt after 14 days as a failsafe to ensure the posted invoice was received and is being processed, and will issue reminders where payment is not received within the requisite 28 days.
It would be prudent to pay the invoice even if you wish to challenge it. This will reduce the potential for further compound interest being levied. Having provided service and salary details, you have effectively been forewarned that an invoice could be on its way.
If an invoice is cancelled after it has been paid by you, then TP will reimburse you in full with all amounts paid. Where payment is received by TP between 29 and 59 days after the dated invoice, TP will issue a supplementary invoice in respect of the balance of compound interest due. When payment is not received by TP within 60 days of the dated invoice, then additional interest will be charged. TP will, on instruction from the Department, cancel the original invoice and issue a replacement to include the revised costs for compound interest.
Back to the top5. Retrospective Part-Time Elections
Arrears should not be confused with invoices relating to retrospective part-time elections. In the case of a retrospective part-time election, all parties need to agree to the retrospection, i.e. you, the employee and TP. Payment is required within 6 weeks of the date of acceptance and TP make this clear when issuing these invoices. Where one or more parties fail to make the payment within the six-week period, then the invoice will be cancelled and any monies received from one party but not the other will be refunded, and the service will not be recognised as pensionable.
Back to the top6. Overseas Teachers: Opt Out Forms
Many overseas teachers are resident in the UK for up to a year and do, therefore, not qualify for pension benefits due to the two-year qualifying period. From 1 January 2007 both full- and part-time teachers will automatically become TPS members when taking up an appointment. You need to provide information about the TPS to such teachers so that they can make a considered decision to remain in or opt out. of the TPS. The appropriate opt out forms must be submitted to TP after the teacher has considered and made their decision. It may be possible for a teacher to submit an election to opt out of the scheme via My Pension Online (our secure website).
You should not assume that if the period of employment is less than a year they do not need to provide TP with opt out forms. Unless opt out forms are been received and validated by TP, the teacher is a member of the TPS. Where in doubt you should deduct and remit contributions to TP. The DCSF will not allow retrospective opt outs except in the most exceptional of circumstances. It is essential in order to protect yourself from financial exposure that you ensure that opt out forms are promptly submitted to TP.
Back to the top7. Interfund Transfers
Some invoices relate to an employee being put in the Local Government Pension Scheme (LGPS) rather than the TPS in error. When this comes to light, TP will issue an invoice as normal which must be paid within 28 days to avoid compound interest being charged. This gives you 28 days in which to arrange to recover the amount paid incorrectly to the LGPS and pay it to the TPS. To avoid being charged interest when this cannot be arranged within the 28 days then you must pay TP's invoice and not delay in expectation that you will recover the money due from the LGPS.
Back to the top8. Additional Guidance for LA Employers
From April 1999 LAs became the deemed employer of former Grant Maintained schools by virtue of paragraph A3 (4) of the Teachers' Pensions Regulations. As a result, arrears invoices are issued to LAs though it is recognised that in practice most LAs would seek reimbursement of the invoice from the school concerned. It is, therefore, incumbent on all LAs with former Grant Maintained schools to have processes in place locally to discharge their liability promptly.
Where a LA is in dispute with a school that refuses to re-imburse for arrears, the LA has recourse to the provisions contained within paragraph 6.2.8 of the Guidance on Schemes for Financing. Where an invoice is not paid within 28 days, then again it could be subject to additional compound interest.
Back to the top9. Case Study
The average arrears invoice TP issue amounts to £4,800 and the table below illustrates how compound interest increases when invoices are unpaid:
Late Payment of one year - 8% compound Interest charged on £4,800 with monthly rests |
||||
| Month 1 | Month 2 | Month 3 | Month 4 | |
|---|---|---|---|---|
Amount due |
£4,800.00 |
£4,832.00 |
£4,864.21 |
£4,896.64 |
Interest charged |
£32.00 |
£32.21 |
£32.43 |
£32.64 |
Cumulative interest |
£32.00 |
£64.21 |
£96.64 |
£129.28 |
| Month 5 | Month 6 | Month 7 | Month 8 | |
Amount due |
£4,929.28 |
£4,962.14 |
£4,995.23 |
£5,028.53 |
Interest charged |
£32.86 |
£33.08 |
£33.30 |
£33.52 |
Cumulative interest |
£162.14 |
£195.23 |
£228.53 |
£262.05 |
| Month 9 | Month 10 | Month 11 | Month 12 | |
Amount due |
£5,062.05 |
£5,095.80 |
£5,129.77 |
£5,163.97 |
Interest charged |
£33.75 |
£33.97 |
£34.20 |
£34.43 |
Cumulative interest |
£295.80 |
£329.77 |
£363.97 |
£398.39 |
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