The CILON payment compensates an employee for the loss of pension benefits from the pension scheme in which they are active as at their last day of service upon termination of employment.

The factors to use depend on the Normal Pension Age (NPA) of the member. NPA is defined as a member's state pension age (or 65, if that is higher) in the alpha
section. For the purpose of this guidance, a member's expected NPA in the alpha section is the same as their state pension age as set out in HMT Valuation Directions. If a member has a non-integer NPA, the appropriate CILON factor should be interpolated for the member's NPA (in complete years and months) using the following formula:

Factor(y,m) = Factor(y) + [(m/12) x (Factor(y+1) - Factor(y))]

Where:

Factor(y,m) is the factor for NPA y years and m months

Factor(y) is the factor for NPA y years

Factor(y+1) is the factor for NPA (y+1) years

We have simplified the presentation of the interpolation formula compared to previous examples shown, but the effect of the formula is the same as the old formulation i.e. it gives the same answer, so there is no need to update administration systems.

The CILON payment should be determined as follows:

CILON payment = Salary x (Factor - Member contribution rate)

Where:

Salary is as defined in the Regulations multiplied by the fraction of the year that relates to the relevant part of the notice period e.g. pensionable earnings x (relevant part of notice period in years).

• Pensionable earnings is the rate of pensionable earnings on the member's last day of service.
• If the member is part-time on their last day of service, pensionable earnings should reflect the part-time proportion on their last day of service (or the expected part-time proportion over the notice period if the member had employer agreement to a change in their part-time proportion). Salary should therefore reflect the member's part-time earnings over the notice period.

Factor depends on the age of the member on their last day of service (in complete years) (for the avoidance of doubt this excludes any of the notice period) and should be interpolated for the member's NPA (in complete years and months) where required. The Factor should be taken from Table P2CIL1 (Table 810 in the consolidated factors workbook). This table is unisex, i.e. it applies to both male and female members.

Member contribution rate is the scheme contribution rate the member would have paid over the relevant part of the notice period for a member's alpha benefit. Where the relevant part of the notice period straddles a change in member contribution rates, then the CILON payment is based on the aggregate of CILON payments relating to the salary and (a) the part of the notice period and member contribution rate before the change and (b) the part of the notice period and member contribution rate on and after the change as follows:

• CILON payment (where notice period straddles a change in member contribution) = CILON payment for notice period before member contribution rate change + CILON payment for notice period on and after member contribution rate change

The CILON payment is calculated by reference to a member's NPA even if the member is purchasing an Effective Pension Age (EPA) or Enhanced Effective Pension Age (EEPA) in the year of exit.