When a member retires before their normal pension age, or if applicable their effective pension age, they can choose at retirement to buy out the early payment reduction that would otherwise apply to the calculation of the annual rate of retirement pension.
The cost of the buy out at retirement, Bcost, is given by the following formula
Bcost = (Early Payment Reduction x APF) / EPF
- Early Payment Reduction - This is the early payment reduction amount by which the rate of pension would be reduced by if the option to buy out the early payment reduction had not been exercised. See reference to how early payment reduction is calculated, below.
- APF - The added pension factor. See reference to added pension factor below.
- EPF - The early payment factor. See reference to early payment factor below.
The early payment reduction will be calculated in accordance with the latest published NJPS 2015 Early Payment of Pension Guidance.
The added pension factor represents the cost of buying £1 of pension that becomes payable at the member's normal pension age. The added pension factor that applies is that which would apply to an active member choosing to buy added pension at the same age as the member at retirement. The added pension factor should be the Lump Sum factor that applies to member benefits only, taken from the appropriate table depending on the member's normal pension age at retirement. This factor should be taken from the latest published NJPS 2015 Added Pension Guidance.
The early payment factor is the appropriate factor according to the latest published NJPS 2015 Early Payment of Pension Guidance. For the purpose of this paragraph, the appropriate early payment factor is determined by the member's normal pension age and not the member's effective pension age, even if the member has exercised an effective pension age option for some or all of their service. The factor is determined using the member's age in years and complete months at retirement.
A member is only able to purchase (additional) added pension if there is available 'headroom'. This is assessed by comparing the value of any 'extra pension' (EPA options plus any accrued added pension) against the 'overall limit of extra pension' ('headroom limit') as set out in Regulations. The Ministry of Justice (MOJ) have confirmed that a member buying out the actuarial reduction on an early retirement pension is not subject to the headroom limit.
