Early payment reduction factors are used to reduce the benefits of members who wish to retire before their Normal Pension Age (NPA) (or Effective Pension Age (EPA)). This guidance does not apply to those who retire with an ill-health pension.
Normal Pension Age 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 defined by legislation at the point when benefits are paid.
We understand that on retirement a full or partial retirement account is established for the member. The retirement account will specify the amount of each description of full / partial retirement pension as set out in scheme regulations.
We have assumed that full / partial retirement pensions in respect of deferred members include pension increases to the proposed date of early retirement where relevant.
The benefits payable on early retirement are determined by applying the appropriate early payment reduction factor to each description of full/partial retirement.
The formulae below set out our intended application of the early payment reduction factors. Where a member has different pension ages for different tranches of their pension (e.g. because they have purchased an EPA option on some of their benefits), the early retirement pension (ERP) should be calculated separately for each tranche. The formulae below show how the ERP would be calculated if the member had purchased an EPA on some of their pension (with the remainder of their pension payable from the member's NPA).
ERPNPA = PensionNPA x P2ER factorNPA
ERPEPA = PensionEPA x P2ER factorEPA
Total ERP = ERPNPA + ERPEPA
Where:
ERP is the member's early retirement pension
PensionNPA is the pension, at the early retirement date, which was eligible to be paid unreduced from the member's NPA, including the relevant in-service or deferred revaluation to the early retirement date.
PensionEPA is the pension, at the early retirement date, which was eligible to be paid unreduced from the member's EPA, including the relevant in-service or deferred revaluation to the early retirement date.
P2ER factorNPA is the factor at the member's age at early retirement date (in years and complete months) taken from the P2ER table relevant to the member's NPA (Tables 0-401 to 0-404 of the consolidated factors workbook). If a member has a non-integer NPA then more than one factor is required and these factors are interpolated to obtain the actual factor to use.
P2ER factorEPA is the factor at the member's age at early retirement date (in years and complete months) taken from the P2ER table relevant to the member's EPA (Tables 0-401 to 0-404 of the consolidated factors workbook). If a member has a non-integer EPA then more than one factor is required and these factors are interpolated to obtain the actual factor to use.
The following points should be noted:
Reduced benefits should be calculated before the commutation option is exercised.
The early retirement reduction applies to the member pension only. The contingent dependant benefits are not reduced on early retirement.
We understand that it is not possible to retire from the alpha section at age 54. However, factor tables start at age 54 rather than age 55 as the age 54 factors will be required where a member with a non-integer NPA retires at age 55 (where this is permitted under the scheme regulations).
Pension Credit pensions should be reduced on early retirement as described above.
Pension Debit pensions should be treated in the same way as a deferred member's pension. Therefore they should be reduced on early retirement as described for deferred members above.
This guidance does not cover the adjustments to apply to scheme pays debits on early or late retirement. Please refer to the scheme pays guidance.
On early retirement, added pension should be reduced as described above.
Actuarially reduced early retirement is not allowed if the reduced benefits in respect of service given on or after 6 April 1978 and on or before 5 April 1997 are expected to be less than a member's Guaranteed Minimum Pension (GMP) at GMP payment age (65 for males and 60 for females). In other schemes a 'GMP test' may be performed at early retirement to check eligibility. However, in alpha the only GMP will be in respect of transfers into the scheme. Therefore it has been decided that there will be a GMP test performed when the benefits are transferred into alpha but no GMP test done when the member takes early retirement. Please refer to the GMP tests guidance for further information on the GMP test on transfer in.
