These factors are used to increase the benefits of deferred members who retire after their NPA/EPA. Cabinet Office has confirmed that a LPS will also be awarded in cases where members leave service on or after NPA/EPA and then delay claiming a pension. The process for calculating the LPS is slightly different depending on whether the member left service before or after NPA/EPA, as described in the paragraphs below. References to EPA in this guidance are also applicable to EEPA.
The LPS is determined by applying the appropriate LPS factors to each description of pension at the point of retirement, where the pension includes any inflation increases awarded between the date that the member left service and the date at which they retire.
The formulae below set out the two stage process for calculating the LPS. Where a member has different pension ages for different tranches of their pension (e.g. because they have purchased an EPA/EEPA option on some of their benefits), the LPS should be calculated separately for each tranche. The formulae below show how the LPS would be calculated if the member had purchased an EPA or EEPA on some of their pension (with the remainder of their pension payable from the member's NPA).
Stage 1 - Calculate the LPS factor for each different pension age
LPSNPA percentage = [(Factor at late retirement age) / (Factor at NPA*)] - 1
LPS(E)EPA percentage = [(Factor at late retirement age) / (Factor at (E)EPA*)] - 1
Where:
Factors are taken from the appropriate table, as explained in the Overview section. Late retirement age, NPA and (E)EPA should be ages in complete years and months, with part months ignored.
*where the member leaves active service after NPA / (E)EPA, the factor at leaving age should be used instead of the factor at NPA / (E)EPA.
Stage 2 - Calculate the LPS using the LPS percentages calculated in Stage 1
LPSNPA = (LPSNPA percentage) x (Pension at retirement which was payable from NPA)
LPS(E)EPA = (LPS(E)EPA percentage) x (Pension at retirement which was payable from (E)EPA)
Total LPS = LPSNPA + LPS(E)EPA
Where:
Pension at retirement is before the commutation option is exercised and includes any inflation increases awarded between the member leaving service and the date of retirement.
Where the member leaves active service after NPA / (E)EPA the pension at retirement should additionally include any age addition awarded in respect of the member's post-NPA / post-(E)EPA active service.
The following points should be noted:
- The LPS should be added before the commutation option is exercised.
- Where the LPS is calculated using factor table P2LPS1, the contingent partner's pension should also receive a LPS increase. Where the LPS is calculated using factor table P2LPS2, the relevant contingent partner's pension should not receive a LPS increase. See the Overview section for further details.
On late retirement, pension debits should be increased to reflect that the debit will be in effect for a shorter period than expected.
If the debit occurred before the member's NPA, then it should be treated as a (negative) standard earned pension (i.e. payable from NPA) for the purposes of determining the LPS increase which should be applied to the debit. The debit at retirement should be calculated in accordance with the formulae above.
Pension debits apply to the contingent partner's pension, as well as the member's pension. The LPS applied to the pension debit should also be applied to the contingent partner's pension.
If the debit occurred after NPA, then the case should be referred to GAD to advise on the appropriate increase to apply to the debit.
Scheme pays debits should be increased if the member retires after their NPA. The instructions in this guidance should not be used to increase scheme pays debits. Separate instructions are provided in the alpha Scheme Pays guidance.
LPSs for added pension will be calculated differently depending on whether the added pension is 'all beneficiaries' or 'self only'.
LPSs for added (all beneficiaries) pension are calculated using Table P2LPS1 in the same way as for standard earned pension (i.e. assuming the added pension is payable from the member's NPA). The contingent partner's pension will also be increased by 37.5% of the LPS applied to the member's pension.
LPSs for added (self only) pension are calculated using Table P2LPS2. It should be assumed that the added (self only) pension is payable from the member's NPA. There is no contingent partner's pension attached to added (self only) pension.
