Redundancy

If you are over age 55

If you are over 55 and your employer terminates your contract on grounds of redundancy, you are entitled to and must take immediate payment of the benefits relating to that employment.

Your pension benefits will be calculated up to your date of redundancy and released to you without an early retirement percentage reduction being applied.

Please note: the benefits will not automatically be made up to the value at your normal pension age.

Exit cap

Who does the exit payment cap apply to?

The cap will apply to all public sector workers including employees of councils (whether metropolitan, county, district, borough or parish), police and fire authorities and academies.

The exit payment cap is effective from 4 November 2020

On 30 September 2020 the House of Commons approved the Restriction of Public Sector Exit Payment Regulations 2020. The legislation to implement the £95,000 on exit payments has now been signed off an comes into force on 4 November 2020.

What is the value of the exit payment cap and what payments does the cap include?

The exit payment cap is set at a total of £95,000. Exit payments include redundancy payments (including statutory redundancy payments), severance payments, pension strain costs - which arise when a Local Government Pension Scheme (LGPS) benefit is paid unreduced before a member's normal pension age - and other payments made as a consequence of termination of employment.

The cap applies to all exit payments that arise within a 28-day period and the regulations cover the process to follow if an individual has multiple exits from public sector employment within 28 days.

The cap will only apply to those individuals where the combined total value of their exit payments (including pension strain costs) is greater than the £95,000 limit. Where it does apply then the value of the exit payments will have to be reduced to the point where the total value of all exit payments is no greater than £95,000.

What is the pension strain cost and who pays the pension strain cost?

Under the rules of the LGPS, if you choose to receive your local government pension before your normal retirement date, then your pension would normally be reduced, to take into account the fact that you are receiving your pension earlier than your normal retirement date.

However, if you are over age 55 and your employer terminates your contract of employment on grounds of redundancy or efficiency, you are entitled to receive an immediate payment of your pension benefits relating to that employment. This will mean that your employer will need to pay an amount of money into the Staffordshire Pension Fund, so that you can receive your full pension, up to the date of leaving, without any reduction in your pension because it has been paid early. The amount of money your employer pays into the Pension Fund, so that you can receive an unreduced pension is called the pension strain cost.

To qualify for LGPS pension benefits, you must pay into the LGPS for at least two years, or transfer pension benefits from another scheme into the LGPS. If you leave the scheme with less than two years' membership, you may not qualify for LGPS pension benefits and will usually be able to choose to have a refund of your contribution.

How can I find out if my exit payments exceed the £95,000 cap?

If you are currently 55 or over and serving a notice period under redundancy, or you and your employer have entered into a redundancy consultation period, your employer should already have (or will be in the process of obtaining) the amount of the pension strain cost. When they have this, they will be able to establish if the pension strain cost when added to other termination payments you are entitled to receive, exceed the £95,000 cap.

What happens next? – subject to the government approval

Further to the government introducing the Restriction of Public Sector Exit Payments regulations and subject to LGPS regulations being amended we understand that other possible options could be that:

  • receive payment of a reduced pension and lump sum, but keep the redundancy or other exit payments (limited to the £95,000 cap)
  • give up some or all of their redundancy payment or other exit payments to receive an unreduced pension, or limit the amount of the reduction to the retirement benefits
  • choose a mixture of the two options above, which will mean giving up some of their redundancy pay to remove some (but not all) of the reduction on their pension and lump sum
  • receive a deferred pension benefit rather that a partially reduced pensions, but keep the redundancy or other exit payments (limited to the £95,000 cap)

As we understand it currently, there will be no transitional period and pension scheme members will be subject to Local Government Pension Scheme rules that apply on the date of leaving.

Further information

If you do have any further questions about how the £95,000 exit payment cap may affect you, then please speak directly to your employer.


 

If you are under age 55

Your benefits are deferred in the Staffordshire Pension Fund until they can be drawn at your normal pension age, or an election is made to draw them early with possible reductions. The deferred benefit increases with cost of living increases.

Please note: benefits will not be brought into payment at this point.


 

Less than 2 years membership

If you have less than 2 years membership you will be entitled to a refund of your pension contributions from the Staffordshire Pension Fund.

Please note: we cannot provide you directly with estimates or confirm retirement on grounds of redundancy. All requests must come from your employer.


 

Frequently asked questions

The following questions and answers are based on a member having at least 2
years membership, which can include previous pension rights transferred
into the fund.

 

Answer:
If you have reached age 55 and you are made redundant, then your retirement benefits will be brought into payment immediately.
Answer:

Once you have left, your benefits will automatically be preserved 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. You can do this at any time before you reach your normal retirement age.

Your preserved 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 rule of 85)
     
  • any age due to ill-health
Answer:

If your benefits are being paid immediately, then it depends on what terms you are leaving. No reductions will be applied to your benefits if:

  • you are made redundant
     
    or
     
  • you retire with your employer’s consent through business efficiency

If you retire voluntarily and you commenced in the scheme after 1 October 2006 your benefits will be reduced if paid before normal pension age.

If you retire voluntarily and you have scheme membership before 1 October 2006 a reduction will only apply if you do not qualify for the protections built into the removal of the rule of 85.

Answer:

If your employer makes you redundant and you have at least two years continuous service, as well as any immediate benefits you are entitled to receive from the LGPS, you will be eligible for a statutory redundancy payment from your employer.

You will need to contact your employer for details of any statutory redundancy payment.

Answer:

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.

Answer:

Yes, if you retire through forced redundancy or voluntary redundancy then you will automatically be entitled to your pension if you are aged 55 or over and have at least two years membership of the scheme.

Answer:

If you become re-employed your pension will be unaffected. We will continue to pay your pension in the normal way.

Answer:

If you have built up membership prior to 1 April 2008 you will be entitled to an automatic tax-free lump sum from the pension fund. If you joined the LGPS after 1 April 2008 you will not be entitled to an automatic lump sum, however, you will have the option of converting some of your annual pension to purchase a lump sum.

Remember: if you are under age 55 the pension lump sum is not automatically payable.

Answer:

Yes, if you are over age 55 and made redundant you will still be able to convert part of your annual pension into additional tax-free cash. You are allowed to exchange £1 of annual pension for an additional £12 tax-free cash up to a maximum of 25% of the capital value of your total 'pension pot'. You will be provided with details of how this option applies to you before your benefits come into payment, as you will need to decide if you wish to convert any part of your pension into additional tax-free cash before that time.

Displaying 1 to 9 of 9