These factors are used to reduce the benefits of STSS members who wish to retire before their normal pension age (NPA).
This section refers only to the early payment of main scheme benefits, Additional Pension and pension credits of STSS members.
The benefits payable on early retirement are determined by applying the appropriate reduction factor to the accrued benefit entitlement(s) at the date of retirement using the formula below and factors in the Factor Tables (STSS).
Early retirement pension =
Main scheme pension x Factor ER1
+ Additional Pension (option exercised before 1 April 2011) x Factor ER2
+ Additional Pension (option exercised on or after 1 April 2011) x Factor ER3
- Pension debit(s) pension x Factor ER1
Early retirement lump sum =
Main scheme lump sum x Factor ER1
- Pension debit(s) lump sum x Factor ER1
Points to note in using the factors:
- Main scheme pension and lump sum includes any transferred-in, added years' pension and lump sum.
- Additional Pension and pension debits need to be revalued to the date of retirement.
- The early retirement factors should be selected with reference to a member's age at retirement (in years and complete months).
- Reduced benefits should be calculated before any commutation option is exercised.
Pre-2007 entrants (i.e. NPA 60 members) who have already reached the age of 60 can purchase Additional Pension with a normal pension age of 65. Where the Additional Pension comes into payment before age 65, it should be reduced for early payment by multiplying by the appropriate factor from Table ER5 (where the option was exercised before 1 April 2011) or Table ER6 (where the option was exercised on or after 1 April 2011).
No adjustments for early retirement are to be made to other elements of the pension.
Early retirement pension =
Main scheme pension x Factor ER4
+ Additional Pension (option exercised before 1 April 2011) x Factor ER5
+ Additional Pension (option exercised on or after 1 April 2011) x Factor ER6
- Pension debit(s) pension x Factor ER4
Points to note in using the factors:
- Main scheme pension includes any transferred-in service.
- Additional Pension and pension debits need to be revalued to the date of retirement.
- The early retirement factors should be selected with reference to a member's age at retirement (in years and complete months).
- Reduced benefits should be calculated before any lump sum commutation option is exercised.
Early retirement pension =
Main scheme pension (where NPA is 60) x Factor ER1
+ Main scheme pension (where NPA is 65) x Factor ER4
+ Additional Pension (option exercised before 1 April 2011) where NPA is 60 x Factor ER2
+ Additional Pension (option exercised before 1 April 2011) where NPA is 65 x Factor ER5
+ Additional Pension (option exercised on or after 1 April 2011) where NPA is 60 x Factor ER3
+ Additional Pension (option exercised on or after 1 April 2011) where NPA is 65 x Factor ER6
- Pension debit(s) pension where NPA is 60 x Factor ER1
- Pension debit(s) pension where NPA is 65 x Factor ER4
Early retirement lump sum =
Main scheme lump sum x Factor ER1
- Pension debit(s) lump sum x Factor ER1
Points to note in using the factors:
- Main scheme pension and lump sum includes any transferred-in and added years' pension and lump sum with the appropriate NPA.
- Additional Pension and pension debits need to be revalued to the date of retirement.
- The early retirement factors 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 dependent on their NPA. For credit members with NPA 60, the calculation is the same as for a pre-2007 entrant ignoring pension debits and additional pension (see Pre-2007 entrants (NPA 60 members): Active or deferred members below age 60 at retirement above for both pension and lump sum).
For credit members with NPA 65, the calculation is the same as for a 2007 or later entrant (see 2007 or later entrants (NPA 65 members): Early retirement of active or deferred members above).
Actuarially reduced early retirement is not allowed if the reduced main scheme pension in respect of service given on or after 6 April 1978 and on or before 5 April 1997 is expected to be less than a member's guaranteed minimum pension (GMP) at GMP payment age (65 for males and 60 for females).
GMP data is not routinely held by the administrator. Where GMP data is not held, an initial test as described in the paragraph directly below should be carried out to decide which cases require further investigation. The test below can be carried out directly if GMP data is held.
If the following condition holds then the scheme pension is expected to be greater than the GMP at GMP payment age and no further investigation is required.
Final average salary / (Highest FTE salary in the GMP accrual period x PI) > ER10A
where:
- Final average salary is that used to determine the amount of the scheme benefits
- Highest full-time equivalent (FTE) salary in the GMP accrual period is the highest FTE salary attained between 6 April 1978 and 5 April 1997
- PI is the pension increase multiplier for the period between (i) the date on which the member first earned the highest FTE salary in the GMP accrual period and (ii) the date which the final average salary relates to.
- ER10A can be found in the Consolidated Factors Workbook.
If the condition above does not hold then the following test should be applied to check whether a member is eligible for actuarially reduced early retirement.
The GMP test is applied to the reduced value of the pension after a member has exercised any commutation option. It may be therefore that actuarially reduced early retirement is permitted but only if no pension is commuted.
The GMP test is set out below:
- Calculate the pension in relation to service before 6 April 1997, excluding any added years but including any (pre-97) transferred-in service and apply the relevant early retirement factor and the reduction for the proposed level of commutation.
- Take revalued annual GMP at date of retirement and apply the relevant factor ER10B from the Consolidated Factors Workbook. This factor should be selected based on the number of tax years commencing before the GMP becomes payable.
- Early retirement is permitted if the reduced pension is greater than the GMP multiplied by the factor.
