A member who has a NPA over 65 may elect to pay contributions to buy out the standard reduction for a period of up to 3 years.
This note sets out the factors to be used to determine the monthly contributions payable by a member who has made a buy-out election, in line with the 2014 Regulations.
The cost of the buy-out election should be calculated with reference to:
- the member's age (last birthday) at the time of entering pensionable service under the career average section; and
- the number of years in respect of which the standard reduction is to be bought out.
The Buy-out election contribution factors are set out in table x-722 in the Consolidated Factors Workbook. These show the percentage of a member's pensionable earnings that need to be paid for the duration of the contributions payment period to buy out the standard reduction for 1 year.
The contribution rate that a member is required to pay should be calculated using the formula below:
Contribution rate = FBO x N
where:
FBO is the buy-out factor from Table BO1 relating to the member's age
N is the number of years to be bought out
Members with non-integer NPAs are able to buy-out the full non-integer period between age 65 and NPA, provided this period is less than 3 years. The formula above should also be used in this instance, where N should be the full non-integer period between age 65 and NPA.
Example calculations for members are set out in Examples.
A member who has a gap in service of less than 5 years may choose to resume paying contributions on re-entering pensionable service. The calculation of the contribution rate payable is not revisited in this instance, unless there has been a change in the guidance, in which case the member's contribution rate may be re-determined in the same way as for those members who did not have a gap in service.
A member is taken to revoke a buy-out election if their gap in service exceeds 5 years.
The buy-out election may also apply to a faster accrual election. The contribution factors set out in table x-722 in the Consolidated Factors Workbook only apply to the accrual of a member's normal scheme pension. The cost of the buy-out election applying to any additional accrual gained through a faster accrual election will be included in the faster accrual factors.
