The contributions payable by employing authorities where a pension becomes payable to a member who takes early retirement on grounds of termination of their employment are determined by applying the appropriate factor to the accrued benefit entitlement(s) at the date of retirement using the formula below and appropriate factors from this guidance. This determines the cost of paying unreduced benefits on retirement.
Members with benefits in both the NHSPSS 2015 and the NHSSS covers members with benefit entitlement from both the NHSPS Scotland and NHSPSS 2015. Unlike 1995 section benefits further accrual in the NHSPSS 2015 is permitted in most cases if 2008 section NHSPS Scotland benefits become payable under the redundancy provisions.
Employer costs on compulsory early retirement for a 2008 section member (NPA 65)
Not Choice Optant:
Cost of basic pension payments up to age 65 = Main scheme pension x Factor CER7
Choice Optant:
Total cost = The cost of unreduced pension + the cost of early payment of lump sum
where:
- The cost of unreduced pension = Main scheme pension (after allowance for commutation of mandatory lump sum) x Factor CER7
- The cost of early payment of lump sum = Mandatory lump sum x Factor CER8
Points to note in using the factors:
- The basic pension/lump sum used in the calculation should include any transferred-in service but exclude any additional pension (AP).
- Main scheme pension/mandatory lump sum refers to the unreduced amounts of benefit which would be payable if no actuarial adjustment is to be applied. And should be consistent with the basic pension/lump sum as above (i.e. exclude any AP).
- The calculation above is for a single contribution payment. See the Payment options: spreading costs or capitalisation after redundancy section for how to spread this as instalments.
- Factors should be applied to pensions before any allowance for commutation except for Choice optants.
- The approach is based on GAD's understanding that the mandatory lump sum is not reduced for payment before age 60 on compulsory early retirement.
Compulsory early retirement is not allowed if the pension payable will be less than the member's guaranteed minimum pension (GMP) at GMP payment age (65 for males and 60 for females). The following test should be applied to check whether a member is eligible for compulsory early retirement.
The GMP must be covered by the reduced value of the pension after a member has exercised any commutation option (and therefore also after any pension debits due to divorce or Scheme Pays have been applied). It may be therefore that compulsory early retirement is permitted but only if no or a restricted amount of pension is commuted.
The GMP test is set out below:
Step 1 - eligibility for compulsory early retirement
- Calculate what the member's compulsory early retirement pension (A) would be, excluding any Added Years but including any transferred-in service (and before any commutation option):
- Take revalued annual GMP at date of retirement (allowing for the better of male and female GMP following equalisation) and add 2.20% for each complete year to GMP payment age:
B = Revalued GMP at retirement date x [1 + 2.20% x (period to date GMP payable)] - Check whether A is greater than B. If yes, the member is eligible for compulsory early retirement at the relevant age. Otherwise, compulsory early retirement at the relevant age is not permitted.
Step 2 - scope for commutation
- Apply the commutation factor to the lump sum required and calculate the residual pension:
C = Total pension* (A) - (additional lump sum / 12)
*after application of ERF if applicable - Check whether C is greater than B. If yes, the member is eligible to benefit C, i.e. commutation up to the relevant lump sum.
- Otherwise the member is only permitted to exchange a smaller proportion of pension for a lump sum of up to 12 x (A - B), with corresponding reduction in pension of (A - B).
