An early payment reduction applies to members who retire 'early' in normal health. Early means, for active 2015 scheme members, those who retire before Normal Pension Age (NPA) and for deferred 2015 scheme members those who retire before reaching their State Pension Age (SPA).
Guidance for calculating the early payment reduction applied to members retiring early from active service is set out in Members retiring from active service (Active member accounts) below.
Guidance for calculating the early payment reduction applied to members retiring early from deferred status is set out in Members retiring from deferred status (Deferred member accounts) below.
The member's retirement account must specify the early payment reductions applying to each amount of retirement earned pension and retirement added pension.
Early payment reduction of earned pension
The early payment reduction applying to the retirement earned pension should be calculated using the following formula:
Early payment reduction = Retirement pension x (1 - FA)
where:
Retirement Pension is taken from the relevant retirement account at the date of retirement and should include transferred in pension.
FA is the early payment reduction factor from Table A (Table 402 in the consolidated factor spreadsheet) in Factor Tables, chosen by reference to the period to the active member's normal pension age. The period to normal pension age should be rounded up to the next month. Alternatively, the period is equal to the normal pension age minus the age of the member in completed years and months.
Early payment reduction of added pension
The early retirement factor applying to the added pension account for active members is the early retirement factor applying to the deferred member account as set out in Members retiring from deferred status (Deferred member accounts) but based on term to normal pension age.
The early payment reduction applying to the amount of added pension for active members can therefore be calculated using the following formula:
Early Payment Reduction = Added pension x (1 - FB)
where:
Added pension is taken from the relevant active account at the date of retirement.
FB is the early payment reduction factor from Table B (Table 403 in the consolidated factor spreadsheet) in Factor Tables, but chosen by reference to the period to the active member's normal pension age. The period to normal pension age should be rounded up to the next month. Alternatively, the period is equal to the normal pension age minus the age of the member in completed years and months.
For the avoidance of doubt, do not deduct any commutation amount from the amounts of retirement pension prior to carrying out the calculations above.
Pensions payable to a member's spouse, partner or dependant should not be reduced.
The member's annual rate of full retirement pension at retirement is then calculated by subtracting the early payment reductions from the member's full retirement pension specified in the member's retirement account (together with any reductions for commutation).
The deferred member's account must specify the early payment reductions applying to each amount of deferred pension and deferred added pension.
A deferred pension is payable without reduction for early payment from the higher of age 65 and the member's State Pension Age.
The responsible authority has confirmed that State Pension Age for the purpose of calculating early retirement factors should be as set out in HM Treasury Directions.
Early payment reduction of deferred pension
The early payment reduction applying to the amount of deferred pension should be calculated using the following formula:
Early payment reduction = Deferred pension x (1 - FB)
where:
Deferred Pension is taken from the relevant deferred account at the date of retirement and should include transferred in pension.
FB is the early payment reduction factor from Table B (Table 403 in the consolidated factor spreadsheet) in Factor Tables, chosen by reference to the period to a member's deferred pension age. The period to deferred pension age should be rounded up to the next month. Alternatively, the period is equal to the member's deferred pension age (in years and months) less the age of the member in completed years and months.
Early payment reduction of added pension
The early retirement factor applying to the added pension account for deferred members is the early retirement factor applying to the deferred member account as set out above but in all cases including deferred members but based on term to normal pension age.
The early payment reduction applying to the amount of added pension for deferred members can therefore be calculated using the following formula:
Early Payment Reduction = Added pension x (1 - FB(added pen))
where:
Added pension is taken from the relevant deferred retirement account at the date of retirement.
FB(added pen) is the early payment reduction factor from Table B (Table 403 in the consolidated factor spreadsheet) in Factor tables, but chosen by reference to the member's normal pension age. The period to normal pension age should be rounded up to the next month. Alternatively, the period is equal to the normal pension age minus the age of the member in completed years and months.
For the avoidance of doubt, do not deduct any commutation amount from the amounts of deferred pension prior to carrying out the calculations above.
Pensions payable to a member's spouse, partner or dependant should not be reduced.
The member's annual rate of full retirement pension at retirement is then calculated by subtracting the early payment reductions from each amount of deferred pension specified in the deferred member's account (together with any reductions for commutation).
