Early payment reduction factors are used to reduce benefits of members who wish to retire before their normal pension age (NPA) or effective pension age (EPA). NPA in the NJPS 2015 is State Pension Age, subject to a minimum of age 65.
Members can purchase an Effective Pension Age of one, two or three years below their normal pension age (subject to minimum of age 65).
The tables in Factor Tables set out the following factors:
- Table A1 - Early payment reduction factors in respect of benefits linked to NPA/EPA of 65.
- Table A2 - Early payment reduction factors in respect of benefits linked to NPA/EPA of 66.
- Table A3 - Early payment reduction factors in respect of benefits linked to NPA/EPA of 67.
- Table A4 - Early payment reduction factors in respect of benefits linked to NPA/EPA of 68.
The age of the member at the effective date of the member's retirement claim (early retirement date) should be calculated in whole years and complete months, part months ignored, as appropriate. This age should then be used to identify the correct factor from the tables.
Where the member's NPA/EPA is not an integer, the reduction factor should be calculated by linear interpolation between the reduction factors that would have applied if NPA/EPA were the nearest integer age below actual NPA/EPA and the nearest integer age above the actual NPA/EPA.
The pension following early retirement (ERP) is calculated as follows:
ERP = Pension x ERFNPA/EPA
In this calculation:
Pension is the pension at the early retirement date, which was eligible to be paid unreduced from the member's NPA/EPA, including the relevant in-service or deferred revaluation up to the early retirement date.
ERFNPA/EPA is the early payment reduction factor that applies for the member, calculated in accordance with the paragraphs above.
The early payment reduction for the member is equal to the member's pension before adjustment for early retirement less the ERP, where Pension and ERP are defined as above.
Early Payment Reduction = Pension - ERP
Where a member has different pension ages for different tranches of their pension (e.g. because they have purchased an Early Pension Age (EPA) option on some of their benefits), the early retirement pension (ERP) should be calculated separately for each tranche.
The Lord Chancellor has confirmed that State Pension Age for the purpose of calculating early payment of pension should be as set out in legislation in force at the time of retirement. Factors are provided to accommodate the range of pension ages members will have in relation to service on and after 1 April 2015 in accordance with current legislation.
This guidance should not be used to calculate the reductions to be applied to members aged below 55 at the date of payment. Such cases should be referred to MOJ, for onward transmission to GAD. Factors for age 54 are included in the table in order to calculate the reduction for a member with an NRA that is not a whole number of years who wishes to retire aged 55.
