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1. Purpose. Regulation 31 of the Local Government Pension Scheme Regulations 1997 (SI No 1612 of 1997) makes provision for members of the Local Government Pension Scheme to elect to retire early on reduced benefits. In accordance with Regulation 31(4), the Government Actuary is required to provide guidance on the appropriate amounts of reduction in retirement pension and retirement grant in respect of early payment. The purpose of this note is to provide the guidance required by Regulation 31(4). This note has been prepared by the Government Actuary’s Department at the request of the Department of the Environment, Transport and the Regions, and is issued to them for onward transmission to the administering authorities and local government employers.
2. Early Leavers. Under Regulation 31(1), a member who has attained age 50, but who is not entitled to immediate payment of retirement benefits, may elect to receive early payment of his retirement benefits immediately from the date of his election (or date of leaving service, if later). This Guidance Note deals only with those cases where a reduction in the level of accrued benefits is appropriate under Regulation 31, and is not relevant to those who are entitled to unreduced benefits because of retirement on ill-health grounds, or for reasons of redundancy.
3. Immediate Elections. This Guidance Note and the attached table is applicable only to members who elect for early payment of benefits immediately at the time of leaving service. Where there is a gap between the date of leaving service and the effective date of the election for early payment of benefits, an alternative approach will be appropriate for members under age 55, because of the restrictions relating to the payment of pensions increases on benefits coming into payment before age 55. In broad terms, pensions increases which have accrued following the date of cessation of service do not come into payment until the member attains age 55. A separate note, and factors, will be prepared for this category.
4. Employer Consent. In accordance with Regulation 31(2), a member who makes an election below the age of 60 is not entitled to immediate payment of his retirement benefits, unless the employing authority or former employing authority gives consent to the early payment. Employer consent is not required for members over age 60, and the member therefore has an unfettered entitlement to a reduced early retirement pension if the election is made after the member attains age 60.
5. Reduction in Benefits. A member is entitled to unreduced benefits on attaining his or her normal retirement date ("NRD"), or on satisfying the "rule of 85" before NRD. To satisfy the "rule of 85" the member’s age (in whole years), plus his total membership (in whole years) including any period between the end of his local government employment and the effective date of the election for the early payment of benefits, must be at least 85. The employer’s consent to early payment of benefits is required if the member would satisfy the rule of 85 prior to age 60.
6. The extent of the reduction in accrued benefits for a member who elects for early immediate payment will depend on the period between the date of election and the date on which the member would be entitled to unreduced benefits (assuming the employer consents to the early payment of benefits for a member under age 60). The table attached with this note shows the percentage reduction that is applicable for each "year early" from 1 year to 15 years. Separate factors are shown for the reduction in pension for men, the reduction in pension for women, and the reduction in lump sum retirement grant. The factors should be interpolated for part years, when the number of "years early" is not an exact whole number.
7. Examples. Two simple examples are described to illustrate the application of the factors. The first example is a female local government employee, whose service with the local government commenced at exact age 45, who serves continuously until exact age 58, and who then elects for early payment of her retirement benefits. The employer’s consent would be required as age is below 60. Since the earliest age at which unreduced benefits would be applicable in this example is age 65, the period of years between the date of election and the date of entitlement to unreduced benefits is 7 years (the difference between age 65 and age 58). Taking the factors in the table, the accrued pension benefit would be reduced by 35%, resulting in pension payment of 65% of the accrued pension, but subject to the underpinning minimum of the requisite benefit test (Regulation 36(5)) and the potential impact of the Guaranteed Minimum Pension. The lump sum retirement grant would be reduced by 18%, resulting in a payment of 82% of the accrued retirement grant.
8. The second example relates to a male employee who commences work at exact age 27, and who serves continuously until age 56, which is the earliest age at which this member would satisfy the rule of 85 requirement. (The rule of 85 is satisfied because the member’s age of 56, plus his total membership of 29 years, would be equal to 85.) If the employer does not give consent to the payment of immediate benefits at age 56, then the earliest age at which unreduced benefits could be payable would be on attainment of age 60.
9. If the employer were to give his consent to the immediate payment of benefits from age 56, then there would be no reduction in accrued benefits payable, because the member satisfies the rule of 85. However, the reduction factors for converting benefits payable from age 60 to their equivalent payments from age 56, (viz. 28% for pension and 9% for lump sum), give an indication of the extra cost being incurred through the exercise of this discretion.
10. If the same member were to apply for immediate early payment of benefits from age 54, and if the employer gave his consent, then the period of years between the date of election and the date of entitlement to unreduced benefits would be two years (ie the difference between age 56 and age 54). In those circumstances, the accrued pension should be reduced by 15%, and the accrued lump sum retirement grant by 5%.
11. Transfer Credits. In cases where a member’s service includes a transfer credit acquired under Regulation 66(1)(d) and 66(5), the retirement pension in respect of this transfer credit should first be reduced in accordance with Regulation 66(7), and then further reduced in accordance with Regulation 31(4), if the member does not satisfy the Rule 85. In such cases, the percentage reduction in the retirement pension in respect of the reduced transfer credit should be determined using the factor for the period from the last day of service to the date used in calculating the reduction in the transfer credit under Regulation 66(7), effectively the earliest date on which the rule of 85 would be satisfied.
12. GMP Test. Because the Local Government Pension Scheme is contracted out of the State Earnings Related Pension Scheme, it must satisfy the various requirements of the preservation and revaluation legislation applying to occupational pension schemes. One of these requirements is that the pension payable to a member from State pension age should not be less than the "Guaranteed Minimum Pension" (GMP) in relation to service before 6th April 1997. Where a member retires early with a reduced pension entitlement, it is possible that the reduction in pension might result in the pension payable from State pension age falling short of the minimum legislative requirements. In considering whether to give consent to a request for an immediate payment of reduced benefits from a member under age 60, the employing authority may wish to take into account whether there is a risk that the pension will have to be increased at State pension age. In order to leave a reasonable margin between the reduced pension and the minimum requirements effective from State pension age, a reasonable test would be to check whether the reduced pension would exceed the current level of the GMP by at least 2% a year for each year between the date of election and the date of attaining State pension age.
Government Actuary’s Department
January 1998
Updated: