The following Q & A’s are based on a member having at least 2 years membership, which can include previous pension rights transferred into the Fund.
I am being made redundant will my benefits be paid immediately?
The Government has introduced a cap on the amount of money a public sector employer can pay when an employee leaves their employment. It is called the public sector exit cap, or £95k cap. It applies to employees leaving public sector employments from 4 November 2020.
The exit cap is most likely to affect you if you are a public sector employee aged 55 or over and you are made redundant or you leave your employment due to business efficiency. This is because the amount your employer pays to the pension fund so that you can receive your pension early is included in the exit cap calculation.
If you have reached age 55 and you are made redundant or you are retiring with your employer’s consent through business efficiency, then your retirement benefits may be brought into payment immediately.
Further information about the public sector exit cap (95K cap) can be found on the LGPS member site
Will my benefits be reduced?
If you work for an employer that is not affected by the 95K cap, and you have reached age 55, you will receive the pension you have built up straight away, without any reductions because it is being paid early.
If the total of the exit payments your employer pays to you, and to the pension fund on your behalf, is £95,000 or less you will not be affected by the exit cap. You will receive the pension you have built up straight away, without any reductions because it is being paid early.
If the total amount is over £95,000, then the situation is more complicated. You may either:
- take your pension straight away but with reductions for early payment, or
- defer your pension – this means you take it later.
Will I receive a statutory redundancy payment?
If your employer makes you redundant and you have at least two years continuous service, you will be eligible for a statutory redundancy payment from your employer. However please be aware that the redundancy payment will count in the calculation of the exit cap. You will need to contact your employer for details of any statutory redundancy payment.
Will I be granted extra pension?
Not necessarily! Your employer can award additional annual pension, to help to compensate for membership that you may lose because you are being retired early, of up to £6,500 (less any amount of additional annual pension your employer has already contributed towards or is contributing towards under a shared cost additional pension contributions contract.
Additional pension is granted at the discretion of your employer therefore no member has an automatic right to be awarded it.
Because your employer will have to meet all the costs of awarding additional pension they may choose to grant you the maximum or a smaller pension or nothing at all.
How will I know what my employer’s policies are?
All employers have to formulate and publish policies stating how they intend to exercise their discretion in relation to:
- • weekly pay for redundancy purposes
- • augmentation of membership/awarding additional pension
If you haven’t seen a copy of your employer’s policy, contact your Pensions/Personnel Officer.
What happens if I do not qualify for immediate payments of benefits?
Once you have left, your benefits will automatically be deferred and fully inflation-proofed in the LGPS until they come into payment. You can if you wish, choose to transfer the value of them into another pension scheme or arrangement. An option to transfer must be made at least 12 months before your Normal Pension Age.
Your deferred benefits will usually come into payment when you reach your normal retirement age. You can, however, choose to take your benefits early from:
- • age 55, however benefits paid before normal pension age will be reduced to take into account early payment, (unless you qualify for the protections of the 85 year rule - see below).
- • any age due to ill-health.
85 Year Rule
The 85 year rule was removed from the Scheme on 1st October 2006, so if you joined the pension scheme after this date the following does not apply and your benefits will be reduced if you choose to voluntarily retire before age 65. Protections have been built into the Scheme for members who were contributing before this date. The rule of 85 determines whether you can retire without a reduction to your benefits. To satisfy the rule, your age last birthday plus the total amount of your membership of the Scheme in whole years must add up to at least 85. If you meet the rule of 85 before the age of 60 it does not give you an automatic right to retire, any retirement under the age of 60 (other than ill-health) is at the discretion of your employer.
If you were born before 1st April 1956 and choose to retire before age 65 and meet the rule when you retire your benefits will be paid without reduction if you retire before 1st April 2016.
If you were born before 1st April 1960 and are at least age 60 and satisfy the rule and retire by 31st March 2020, your benefits based on your membership to the 31st March 2008 will be paid without reduction, membership from 1st April 2008 to the date you retire will have ‘stepped’ reduction factors applied to them to avoid full reductions.
If you were born after 31st March 1960, and are at least age 60 and you choose to voluntarily retire before age 65 but you would have met the 85 year rule by then, the part of your benefits based on your membership to the 31st March 2008 will be paid without reduction. The rest of your membership will be reduced to take into account early payment.
If you cannot meet the rule before age 65 your benefits would have always been reduced if you choose to voluntarily retire before age 65