The Local Government Pension Scheme  

REDUCTION OF TRANSFER CREDITS - REGULATION 66

1. Purpose Regulations 66 (1)(d) and 66(5) of the Local Government Pension Scheme Regulations (SI No. 1612 of 1997) permit an active member who has attained age 50, and who has stopped paying AVCs, to use the accumulated value of the AVCs to acquire a transfer credit in the Scheme. As a result of the adjustment required by Regulation 66(8), the period of membership credited is only used in the calculation of pension benefits and is not used in the calculation of the member’s retirement grant. If a member who has acquired transfer credits in the Scheme in this way elects for early payment of his retirement benefits under Regulation 31, Regulation 66(7) provides for the transfer credits (as adjusted to remove the entitlement to a retirement grant) to be reduced to such percentage as is shown as appropriate in guidance issued by the Government Actuary. The purpose of this note, prepared by the Government Actuary's Department, is to provide the guidance required by Regulation 66(7). The note has been prepared at the request of the Department of the Environment, Transport and the Regions and is issued to them for onward transmission to administering authorities and employing authorities.

2. Reduction Period There is to be no reduction in the transfer credits when a member retires at or after his normal retirement age under Regulation 25, but Regulation 31(4) provides that a member’s retirement pension and grant must be reduced if he elects for early payment of his benefits before he satisfies the "85 rule". To satisfy the "85 rule", 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 early payment of benefits, must be at least 85.

3. Thus the reduction in transfer credits required by Regulation 66(7) should be based on the period between the earliest date the 85 rule would be satisfied, (or the effective date of the election for early payment of benefits, if later), and the normal retirement date ("NRD") as defined in the LGPS Regulations. The reduction should then be such that the value of the pensions based on the reduced transfer credit, payable from the earliest date the 85 rule is satisfied, or the effective date of the election for early payment of benefits, if later, is the same as the value of the pensions based on the unreduced transfer credit payable from the NRD.

4. Change in "85 Rule" Date There is the slight difficulty that the reduction in transfer credits required by Regulation 66(7) could change the earliest date on which the member would satisfy the 85 rule. Any change in the earliest date on which the member would satisfy the 85 rule caused by the reduction in the transfer credits under Regulation 66(7) should be ignored in determining the reduction under that regulation. Any reduction in the part of the member’s retirement pension in respect of the reduced transfer credit, under Regulation 31(4), because the member does not satisfy the 85 rule, should be based on the period between the effective date of the election for early payment of benefits and the date the 85 rule would be satisfied which was used to determine the reduction in transfer credits under Regulation 66(7). Where the member does not satisfy the 85 rule at the effective date of his election for early payment of benefits under Regulation 31, it is most important that the period used for calculating the reduction in his transfer credits and the further period used to reduce the member’s retirement pension together equal the period between the effective date of his early retirement under Regulation 31 and his NRD.

5. Reduction in Benefits The table attached is applicable only to members who elect for early payment of benefits immediately on leaving service. The table shows the percentage reductions in the transfer credits, under Regulation 66(7), according to the period between the earliest date the 85 rule would be satisfied, (or the date of leaving service, if later), and the NRD. Separate factors are shown for men and women. The member’s retirement pension based on the reduced transfer credit is then subject to reduction under Regulation 31(4) if the member does not satisfy the 85 rule at the date he elects to receive his retirement benefits early.

6. Deferred Elections Where there is a gap between the date of leaving service and the effective date of the election for early payment of benefits under Regulation 31, an alternative approach will be appropriate for members under age 55. This is because of the restrictions relating to the payment of pensions increases on benefits coming into payment before age 55. In broad terms, pension 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.

Government Actuary's Department

                    28 January 1998

 

 

Local Government Pension Scheme

Early Retirement

Percentage reduction in transfer credits under Regulation 66(7)

(Elections applicable immediately on cessation of service)

Notes

 

(1) Before application of these percentage reductions under Regulation 66(7), the transfer credits should have been adjusted under Regulation 66(8) for the exclusion of a lump sum payable at retirement.

(2) The number of "years early for which transfer credits are to be reduced" is the period between the dates (a) and (b) below, where

(a) is the date on which the member satisfies the "Rule of 85" or the date of leaving service, if later, and

(b) is the member’s Normal Retirement Date.

 

(3) The member satisfies the "Rule of 85" if his age (in whole years) plus his total membership (in whole years) plus the period (if any) between termination of local government employment and the date he elects for early payment of benefits, equals 85.

(4) Where the number of "years early for which transfer credits are to be reduced" is not exact, reduction factors should be interpolated for part years.

(5) Where the date from which the member has elected to receive his retirement benefits early is before the date on which he satisfies the "Rule of 85", the member’s retirement pension based on the reduced transfer credit is subject to further reduction under Regulation 31(4).

 

The Local Government Pension Scheme Regulations 1997 (the "LGPS Regulations")

Early Retirement

1. A member who has attained age 50 but is not yet entitled to an immediate payment of retirement benefits (because he has not attained his normal retirement age, is not leaving because of redundancy or is not retiring on grounds of ill-health) may elect to receive payment of his retirement benefits immediately, under Regulation 31(1). Regulation 31(4) provides that the member’s retirement pension and grant must be reduced by the amounts shown as appropriate in guidance issued by the Government Actuary if the member does not satisfy the "85 rule" - see paragraph 2. The purpose of this note prepared by the Government Actuary's Department for the Department of the Environment, Transport and the Regions and issued to them for onward transmission to administering authorities and employing authorities is to provide the guidance required by Regulation 31(4).

2. There is to be no reduction in the retirement pension and grant of a member who has attained age 50 and who elects to receive early payment of these benefits if he satisfies the "85 rule" though he would require the consent of his employing authority or former employing authority if he were under age 60. To satisfy the "85 rule" a 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 early payment of benefits, must be at least 85.

3. Thus the reduction in the member’s retirement pension and grant required by Regulation 31(4) for members who do not satisfy the 85 rule should be based on the period between the date of election for early payment of benefits and the earliest date on which the 85 rule would be satisfied, or the member’s normal retirement date ("NRD") if the member is unable to satisfy the 85 rule before then. It needs also to be based on the member’s age and sex.

4. The attached tables, which are only applicable to members who elect for early payment of benefits immediately on leaving service, show the percentage reduction in the member’s pension (with separate tables for men and women) and retirement grant (one table), under Regulation 31(4), according to the member’s age on the last day of service and the period between his last day of service and the earliest date the 85 rule would be satisfied, or the member’s NRD, if earlier.

5. 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, with separate factors, is necessary particularly for members under age 55 because, for them, the factors need to be applied to the deferred benefits excluding pension increases which have accrued since the member left service.

6. The factors in the tables attached are the same as the existing factors derived some years ago for periods above a member’s 60th birthday, as shown in Regulation D13 of the existing LGPS Regulations (SI No. 1019 of 1995). A more modern actuarial basis has been adopted for periods before a member’s 60th birthday, where there are no existing factors. As a result of this combination, the factors for periods partly before and partly after age 60 will sometimes appear inconsistent with those of the same length which are wholly before or wholly after age 60.

7. In cases where a member’s service includes a transfer credit acquired under Regulations 66(1)(d) and 66(5), the retirement pension in respect of the transfer credit, as reduced in accordance with Regulation 66(7), should be reduced under Regulation 31(4) if the member does not satisfy the 85 rule. However in this case the percentage reduction in the retirement pension in respect of the reduced transfer credit should be based on the period between the last day of service and the same date for the earliest date on which the 85 rule would be satisfied as that used in calculating the reduction in the transfer credits under Regulation 66(7).

8. Regulation 36(1) provides that a member is entitled to a pension from the date he attains State pensionable age to not less than the guaranteed minimum in relation to service before 6 April 1997. If, therefore, a pension which has been reduced in accordance with Regulation 31(4) together with pension increases is less than the GMP when the member reaches State pensionable age, the pension will have to be increased from that date. An increase might have been necessary in any event but if the pension had been reduced under Regulation 36(1), the increase required at State pensionable age would be higher. The factors for reducing the pension under Regulation 31(4) do not make any allowance for a greater increase in pension at State pensionable age under Regulation 36(1) than would otherwise have been required. In considering whether to consent to a request for immediate payment of benefits from a member under age 60 who has not yet satisfied the 85 rule, a factor which the employing authority may wish to take into account is whether the pension would have to be increased at State pensionable age. An appropriate test would be to compare the reduced pension to the member payable from the date of leaving service with the multiple of the accrued GMP shown in the table below. If the reduced pension is less than the multiple of the accrued GMP shown, it is likely that the increase in pension at State pensionable age under Regulation 36(1) would be higher than it would otherwise have been, or there would be an increase where there would otherwise not have been one.

Period for which factors apply

9. The factors should be reviewed periodically having regard to changes in mortality rates at ages above 50 and perceptions as to long-term real rates of return on index-linked stocks. It is expected that the first such review will take place after the actuaries to the various funds have completed their valuations at 31 March 1998.

 

 Government Actuary's Department

January 1998

 

 

(a) The pension to the member’s spouse would be based on the member’s pension before reduction for early payment.

(b The percentage reduction when the member does not leave service on a birthday and/or when the period to his NRD or to the date on which his age (in whole years) plus his membership (in whole years) equals 85, if earlier, is not an exact number of years should be obtained by interpolation.

(a) The pension to the member’s spouse would be based on the member’s pension before reduction for early payment.

(b The percentage reduction when the member does not leave service on a birthday and/or when the period to her NRD or to the date on which her age (in whole years) plus her membership (in whole years) equals 85, if earlier, is not an exact number of years should be obtained by interpolation.

The percentage reduction when the member does not leave service on a birthday and/or the period to the date on which his or her age (in whole years) plus his or her membership (in whole years) equals 85, if earlier, is not an exact number of years should be obtained by interpolation.

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