Early payment reduction factors are used to reduce benefits of members in normal health who wish to retire before their normal pension age (NPA). This guidance does not apply to those who retire with an ill-health pension.
The methodology used to calculate the early payment reduction is different depending on which of the following two circumstances applies to the member in question:
Circumstance 1: Early retirement direct from service and/or over age 55.
Circumstance 2: Early retirement from deferment and under 55
The following points should be noted:
- Reduced benefits should be calculated before the commutation option is exercised. The Early retirement lump sum formulae in the sections below apply only to lump sums accrued automatically in the classic scheme. They do not apply to lump sums which arise from members exercising the commutation option.
- The early retirement reduction applied to the member's pension does not apply to the contingent dependant benefits which may be payable in the future.
We understand that the minimum retirement ages (in normal health) in the PCSPS(NI) are as follows:
- classic, premium - 50 years (for some members it will be 55 years)
- nuvos - 55 years
The formula below sets out how to reduce the member's pension on early retirement when the member retires directly from active service and/or over age 55 at retirement date.
Early retirement pension = Unreduced pension × Factor
Where:
Unreduced pension is the member's pension at retirement (before pension increases applied).
Factor is the factor appropriate to the member's age in years and complete months (ignoring part months) at retirement, taken from the appropriate table of early payment reduction factors. The appropriate table will depend on the member's scheme and NPA as follows:
- classic and premium members with an NPA of 60 - table P1ER60PEN1
- classic and premium members with an NPA of 65 and linked service benefits of nuvos members - table P1ER65PEN1
- nuvos members (excluding linked service benefits) - table P1ER65NUV
In the classic scheme members accrue an automatic lump sum alongside their pension. This should be reduced as follows:
Early retirement lump sum = Unreduced lump sum × Factor
Where:
Unreduced lump sum is the member's lump sum at retirement (before pension increases applied).
Factor is the factor appropriate to the member's age in years and complete months (ignoring part months) at retirement taken from the following tables of early payment reduction factors:
- classic members with an NPA of 60 - table P1ER60LS1
- classic members with an NPA of 65 - table P1ER65LS1
The formula below sets out how to reduce the member's pension on early retirement when the member retires from deferment and is under age 55 at retirement date.
Early retirement pension = Unreduced pension / [(Ax / PI) + F]
Where:
Unreduced pension is the member's pension at retirement (before pension increases applied).
Ax is the factor for a member aged x (in years and complete months) at retirement, from the following tables of early payment reduction factors:
- classic and premium members with an NPA of 60 - Table P1ER60PEN2.
- classic and premium members with an NPA of 65 - Table P1ER65PEN2.
PI is the pension increase multiplier for the period from the beginning date of the preserved award to the date from which the reduced pension is payable.
F is the factor from Table 1-420 in the Consolidated Factor Workbook corresponding to the classic or premium member's NPA.
In the classic scheme members accrue an automatic lump sum alongside their pension. This should be reduced as follows:
Early retirement lump sum = Unreduced lump sum / [(Bx / PI) + Cx]
Where:
Unreduced lump sum is the member's lump sum at retirement (before pension increases applied).
Bx and Cx are the factors for a member aged x (in years and complete months) at retirement, taken from the relevant sub-tables B or C of the following tables of early payment reduction factors:
- classic members with an NPA of 60 - table P1ER60LS2
- classic members with an NPA of 65 - table P1ER65LS2
PI is the pension increase multiplier for the period from the beginning date of the preserved award to the date from which the reduced pension is payable.
We understand that the minimum retirement age in nuvos is 55, so there should not be any cases of early retirement from deferment under age 55 in the nuvos scheme.
We understand that there are a number of members of the final salary sections of the PCSPS(NI) who have a personal pension age (i.e. a NPA between age 60 and 65 years). These cases are handled on a case by case basis. Please refer these cases to GAD.
Pension Credit pensions should be reduced on early retirement as described above. Note that Pension Credit members in the nuvos scheme may receive their pension unreduced from age 60 (not age 65). The reductions applied for nuvos Pension Credit members are as described in Table P1ER65NUV (where the number of years early that they retire is in relation to a pension age of 60 years rather than 65 years). No reductions should apply for nuvos Pension Credit members retiring after age 60.
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 above.
This guidance does not cover the adjustments to apply to scheme pays debits on early or late retirement. Please refer to the separate guidance on scheme pays debits in the PCSPS(NI).
On early retirement, added pension should be reduced in line with the main scheme benefits for the various sections, as detailed 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). Please refer to the separate guidance on GMP tests in the PCSPS(NI).
