These factors are used to reduce the benefits of career average section members who wish to retire before their normal pension age.
This section refers only to the early payment of full retirement earned pension benefits, Additional Pension and pension credits of career average section members.
For members retiring early from active service, the standard reduction of 3% a year applies for a maximum of 3 years between age 65 and a member's normal pension age. However, members do have the option to pay contributions to buy out the standard reduction ("buy-out election") for a period of up to 3 years.
DfE have determined that in cases where the standard reduction is to be applied for a non-integer number of years, it is to be calculated as a reduction of 0.25% for each complete month between age 65 (or the member's age at retirement, if later) and the member's normal pension age, up to a maximum of 36 months.
The benefits payable on early retirement from active service are determined by applying the standard reduction (if any) and the appropriate reduction factor (if required) to the accrued benefit entitlement at the date of retirement using the formula in the Active Members section below and the factors for the career average section.
The benefits payable on early retirement from deferred status are determined by applying the appropriate reduction factor to the accrued benefit entitlement at the date of retirement using the formula in the section Deferred members - pension not subject to a buy-out election below and the factors for the career average section. An adjustment to the early retirement reduction is required for those members who made a buy-out election. The formula in the section Deferred members - pension subject to a buy-out election should be used for any part of a deferred member's pension that is subject to a buy-out election.
For both active and deferred members, transferred in pension is not covered by any buy-out election they may have made. For the avoidance of doubt, separate calculations will be required for those parts of the pension that are covered by the buy-out election and those that are not covered by the buy-out election.
Early retirement pension =
Full retirement earned pension x standard reduction x Factor ER7
+ Additional Pension x Factor ER8
- pension debit(s) pension x Factor ER8
Points to note in using factors:
- Full retirement earned pension includes any transferred-in pension and any extra pension purchased through a faster accrual election.
- Additional Pension and pension debits need to be revalued to the date of retirement.
- The standard reduction should be adjusted accordingly if a member has made a buy-out election. If a member revokes, or is taken to revoke, the buy-out election, the election only applies to the pension accrued before the date of the revocation. In such cases, separate calculations are required for the elements of the pension which are and are not covered by the buy-out election, with the total pension payable being the sum of these separate calculations.
- Transferred in pension is not covered by the buy-out election, therefore if a member has a buy-out election, the transferred in part of the pension, would need to be calculated in line with this formula and other parts of the pension that are covered by the buy-out election would need to have the standard reduction adjusted accordingly and calculated separately. The total pension payable being the sum of these separate calculations.
- Factor ER7 should be selected with reference to a member's age at retirement (in years and complete months). These factors are to be used regardless of a member's NPA.
- Factor ER8 should be selected with reference to the period to a member's NPA (in years and months, with part months rounded up to the nearest month).
- Reduced benefits should be calculated before commutation option is exercised.
Early retirement pension =
Full retirement earned pension x Factor ER8
+ Additional Pension x Factor ER8
- pension debit(s) pension x Factor ER8
Points to note in using factors:
- Full retirement earned pension includes any transferred-in pension and any extra pension purchased through a faster accrual election.
- Additional Pension and pension debits need to be revalued to the date of retirement.
- Factor ER8 should be selected with reference to the period to a member's NPA (in years and months, with part months rounded up to the nearest month).
- Reduced benefits should be calculated before commutation option is exercised.
Early retirement pension =
Full retirement earned pension x [Factor ER8 + standard reduction x N x Factor ER9]
+ Additional Pension x Factor ER8
- pension debit(s) pension x Factor ER8
where standard reduction is 0.03 and where N is the minimum of:
- the number of years for which the standard reduction has been bought out; and
- the period to the member's NPA (in years and months, with part months rounded up to the nearest month) minus 1/24.
Points to note in using factors:
- Full retirement earned pension includes any extra pension purchased through a faster accrual election which is also subject to a buy-out election.
- Additional Pension and pension debits need to be revalued to the date of retirement.
- If a member revokes, or is taken to revoke, the buy-out election, the election only applies to the pension accrued before the date of the revocation. Also, transferred in pension is not covered by the buy-out election, therefore if a member has a buy-out election, the transferred in part of the pension would need to be calculated separately. In such cases, separate calculations are required for the elements of the pension which are covered by the buy-out election in the section Deferred members - pension subject to a buy-out election and are not covered by the buy-out election in the section Deferred members - pension not subject to a buy-out election, with the total pension payable being the sum of these separate calculations.
- Factor ER8 should be selected with reference to the period to a member's NPA (in years and months, with part months rounded up to the nearest month).
- Factor ER9 should be selected with reference to a member's age at retirement (in years and complete months).
- Reduced benefits should be calculated before commutation option is exercised.
The formulae set out above make explicit allowance for pension debits (which includes annual allowance debits). The pension debits are also reduced to reflect that the pension debit will be in effect for a longer period.
Early retirement reductions apply to pension credit members. Calculation of the early retirement pension for pension credit members follows the same process outlined above for career average section deferred members who did not make a buy-out election (see the section Deferred members - pension not subject to a buy-out election).
