Rule of 85
This is an explanation of the rule of 85 and the protections under the Local Government Pension Scheme regulations.
The rule of 85 was removed from the Local Government Pension Scheme (LGPS) with effect from 1 October 2006 and does not apply to anyone who joined the scheme after that date.
For those who built up pension benefits before 30 September 2006 there are varying levels of protection, which these notes will explain.
The rule of 85 is used to work out whether or not a member’s pension benefits (retirement pension and retirement grant) will be reduced if a member retires before their normal pension age (NPA). It is not used to decide when a member can retire or as a reason for leaving.
When a member retires under certain circumstances, where the sum of their age plus the calendar length of their membership of the scheme (both in whole years) is equal to or greater than 85, then all or part of their pension will be unreduced.
The reductions which apply to pension benefits paid before NPA are calculated in accordance with a set of factors issued by the Government Actuaries Department and are based on the how long before the NPA a member retires.
The factors were re-issued by the Government Actuaries Department on 3 July 2023. The factors are now unisex (i.e. the same factors apply to both men and women). The current reduction factors are set out below:
| Years early | Pension reduction (%) | Retirement grant reduction (%) |
|---|
| 0 |
0.0 |
0.0 |
| 1 |
4.9 |
1.7 |
| 2 |
9.3 |
3.3 |
| 3 |
13.5 |
4.9 |
| 4 |
17.4 |
6.5 |
| 5 |
20.9 |
8.1 |
| 6 |
24.3 |
9.6 |
| 7 |
27.4 |
11.1 |
| 8 |
30.3 |
12.6 |
| 9 |
33.0 |
14.1 |
| 10 |
35.6 |
15.5 |
| 11 |
39.5 |
N/A |
| 12 |
41.8 |
N/A |
| 13 |
43.9 |
N/A |
As automatic retirement grants were removed from the scheme on 1 April 2008, and due to the protections in place regarding NPA, a retirement grant can only be paid a maximum of 10 years early.
Normal pension age (NPA)
The current normal pension age (NPA), which is the age at which benefits are due to be paid without a reduction mirrors the state pension age (see separate state pension age notes), although there is a minimum of age 65.
Where a female member has a state pension age between 60 and 65, their NPA in the LGPS will be age 65.
Prior to 31 March 2014, the NPA was 65 for all members, however, where the member was in the scheme on 30 September 2006, an assessment could be made under the rule of 85 and, subject to the protections laid out below, if a member met the rule of 85, their benefits could be paid without a reduction.
The table below sets out the rule of 85 protections and shows when a member’s benefit would become payable without a reduction.
Explanation of terms in the table
Critical retirement age (CRA)
The date at which the rule of 85 would have been met. However, where a member takes voluntary early retirement between age 55 and 60, CRA becomes the later of either the date at which the rule of 85 would have been met or age 60, although an employer may agree that the rule of 85 should apply in full.
Normal pension age (NPA)
The later of either state pension age or age 65.
Taper
This means that a partial reduction will apply to the pension built up during part B1, B2 and C service periods. Details of how a tapered reduction is calculated are set out in the example calculations.
| Service period | Group 1 | Group 2 | Group 3 | Group 4 |
|---|
| Part A |
CRA |
CRA |
CRA |
65 |
| Part B1 |
CRA |
Taper |
65 |
65 |
| Part B2 |
CRA |
Taper |
NPA |
NPA |
| Part C |
NPA |
Taper |
NPA |
NPA |
| Part D1 |
NPA |
NPA |
NPA |
NPA |
| Part D2 |
65 |
65 |
65 |
65 |
Group number definitions
- Member of the scheme before 30 September 2006 and date of birth before 31 March 1956.
- Member of the scheme before 30 September 2006 and date of birth between 1 April 1956 and 31 March 1960 and would meet the rule of 85 before 31 March 2020.
- Member of the scheme before 30 September 2006 and is not a group 1 or 2 member*.
- Member of the scheme who commenced membership after 1 October 2006.
* Where a member of the scheme would fall into group 2 due to their age and membership of the scheme, but would not have met the rule of 85 until on or after 1 April 2020, they become a group 3 member.
Service periods
The service periods have the following meaning:
| Part of membership | Definition |
|---|
| Part A |
Membership built up before 31 March 2008 |
| Part B1 |
Membership built up between 1 April 2008 and 31 March 2014 |
| Part B2 |
Membership built up between 1 April 2014 and 31 March 2016 |
| Part C |
Membership built up between 1 April 2016 and 31 March 2020 |
| Part D1 |
Membership built up after 1 April 2020 and pension not related to actual service (includes transfers received after 1 April 2014 and additional pension bought by paying additional pension contributions contracts started after 1 April 2014)` |
| Part D2 |
Membership (and pension) not related to actual service (includes purchases started after 1 October 2006, pension from additional regular contributions contracts started between 1 April 2008 and 31 March 2014 and transfers received between 1 April 2008 and 31 March 2014) |
The following example calculations are simplified examples looking only at the reductionsthat would apply. No calculations of pension benefits are included.
Example 1 – Group 1 member retiring on or after age 60
Details
- Date of birth: 1 September 1955
- State pension age (NPA): Age 66 (1 September 2021)
- Joined LGPS: 1 December 1986
- Date of retirement: 31 October 2018
Membership
- Part A: 21 years, 121 days
- Part B1: 6 years
- Part B2: 2 years
- Part C: 2 years, 214 days
- Total: 31 years, 335 days
At retirement date the member is age 63 and has 31 completed years membership.
31 + 63 = 94. As this is over 85, the member would meet the Rule of 85 on retirement.
The benefits based on the member’s Part A, B1 and B2 membership are not reduced at retirement.
However, the benefit based on the member’s Part C membership is reduced at retirement as follows:
Unreduced benefits are payable at NPA.
Distance from retirement to NPA
1 November 2018 to 31 August 2021 is 2 years and 304 days.
To calculate the reduction, we need to interpolate between the factors for 2 years early and 3 years early.
Reduction factors
- 2 years early, pension reduction factor = 9.3
- 3 years early, pension reduction factor = 13.5
Reduction to apply to pension: 13.5 - 9.3 = 4.2
4.2 x 304 / 365 = 3.4981
9.3 + 3.4981 = 12.7981%
The reduction which will apply to the pension built up between 1 April 2016 and retirement is 12.7981%
As there is no automatic lump sum build up after 31 March 2008, there is no reduction to lump sum.
Example 2 – Group 1 member retiring between age 55 and 60
Details
- Date of birth: 1 December 1955
- State pension age (NPA): Age 66 (1 December 2021)
- Joined LGPS: 1 April 1988
- Date of retirement: 30 November 2018 (age 59)
Membership
- Part A: 20 years
- Part B1: 6 years
- Part B2: 0 years, 244 days
- Total: 26 years, 244 days
At retirement date the member is age 59 and has 26 completed years membership.
26 + 59 = 85. However, even though this is over 85, as the member is retiring before age 60, the CRA becomes the later of the date the Rule of 85 is met or age 60.
The benefit is therefore reduced at retirement as follows:
However, the benefit based on the member’s Part C membership is reduced at retirement as follows:
Unreduced benefits are payable at age 60.
Distance from retirement to 60
1 December 2014 to 30 August 2015 is 1 year.
Reduction factors
- 1 year early, pension reduction factor = 4.9
- 1 year early, retirement grant = 1.7
The whole of the member’s pension will be reduced by 4.9% and the whole of the retirement grant is reduced by 1.7%
Example 3 – Group 2 member retiring on or after age 60
Details
- Date of birth: 1 September 1956
- State pension age (NPA): Age 66 (1 September 2022)
(Protected NPA: Age 65, 1 September 2021)
- Joined LGPS: 1 December 1987
- Date of retirement: 31 August 2016 (age 60)
Membership
- Part A: 20 years, 121 days
- Part B1: 6 years
- Part B2: 2 years
- Part C: 0 years, 153 days
- Total: 28 years, 274 days
At age 60, the member has 28 completed years membership. 28 + 60 = 88. As this is over 85, the member would meet the rule of 85 on retirement. The benefit is therefore reduced at retirement as follows:
The benefits based on the member’s Part A membership are not reduced at age 60.
The benefits based on the member’s Part B1, B2 and C membership are subject to a tapered reduction, calculated as follows:
Element 1 of calculation - tapered interpolation factor (TIF)
The TIF is calculated by taking the calendar length of the difference between 1 April 2016 and the first date the member would be both age 60 and meet the Rule of 85 and dividing this by 4.
Member is both age 60 and met the rule of 85 on 31 August 2016.
1 April 2016 to 31 August 2016 = 0 years, 153 days
TIF = (153 / 365) / 4 = 0.1048
Element 2 of the calculation - reduction amounts
A tapered reduction (PTAPER) is calculated from 2 separate reduction amounts:
- Reduction between retirement and critical retirement age (PCRA)
- Reduction between retirement and protected NPA (age 65) (P65)
PCRA: in this case is no reduction, as the member meets the Rule of 85 at retirement
P65: in this case the reduction is for the distance between age 60 and age 65
Reduction factors
- 5 years early, pension reduction = 20.9
Calculation
- PTAPER = (P65 x TIF) + (PCRA x (1 – TIF))
- PTAPER = (20.9 x 0.1048) + (0 x 0.8952)
- PTAPER = (2.1903) + (0)
- PTAPER = 2.1903%
The reduction which will apply to the pension built up between 1 April 2008 and retirement is 2.1903%.
As there is no automatic lump sum build up after 31 March 2008, there is no reduction to lump sum.
Example 4 – Group 2 member retiring between age 55 and 60
Details
- Date of birth: 17 May 1957
- State pension age (NPA): Age 66 (17 May 2023)
(Protected NPA: Age 65, 17 May 2022)
- Joined LGPS: 1 January 1985
- Date of retirement: 16 May 2015 (age 58)
Membership
- Part A: 23 years, 90 days
- Part B1: 6 years
- Part B2: 1 year, 46 days
- Total: 30 years, 136 days
At age 58, the member has 30 completed years membership. 30 + 58 = 88. However, even though this is over 85, as the member is retiring before age 60, the CRA becomes the later of the date the rule of 85 is met or age 60.
The benefits based on the member’s Part A membership are reduced by the distance from Retirement to 60:
17 May 2015 to 16 May 2017 = 2 years.
Reduction factors
- 2 years early, pension reduction = 9.3, retirement grant = 3.3
The part of the member’s Pension relating to membership before 31/03/2008 will be reduced by 9.3% and the whole of the Retirement Grant is reduced by 3.3%
The benefits based on the member’s Part B1, B2 and C membership are subject to a tapered reduction, calculated as follows:
Element 1 of calculation - tapered interpolation factor (TIF)
The TIF is calculated by taking the calendar length of the difference between 1 April 2016 and the first date the member would be both age 60 and meet the Rule of 85 and dividing this by 4.
Member is both age 60 and met the rule of 85 on 16 May 2017.
1 April 2016 to 16 May 2017 = 1 year, 46 days
TIF = (1 + (46 / 365)) / 4 = 0.2815
Element 2 of the calculation - reduction amounts
A tapered reduction (PTAPER) is calculated from 2 separate reduction amounts:
- Reduction between retirement and critical retirement age (PCRA)
- Reduction between retirement and protected NPA (age 65) (P65)
PCRA: in this case the reduction is for the distance between retirement and age 60, 2 years early, pension reduction 9.3
P65: in this case the reduction is for the distance between retirement and age 65, 7 years early, pension reduction 27.4
Calculation
- PTAPER = (P65 x TIF) + (PCRA x (1 – TIF))
- PTAPER = (27.4 x 0.2815) + (9.3 x 0.7185)
- PTAPER = (7.7131) + (6.6821)
- PTAPER = 14.3952%
The reduction which will apply to the pension built up between 1 April 2008 and retirement is 15.2767%.
Example 5 – Group 3 member retiring on or after age 60
Details
- Date of birth: 14 April 1961
- State pension age (NPA): Age 67 (14 April 2028)
- Joined LGPS: 1 December 1999
- Date of retirement: 13 April 2023 (age 62)
Membership
- Part A: 8 years, 121 days
- Part B1: 6 years
- Part B2: 2 years
- Part C: 4 years
- Part D1: 3 years, 13 days
- Total: 23 years, 134 days
At age 62, the member has 23 completed years membership. 23 + 62 = 85. The CRA in this case is age 62.
The benefits based on the member’s Part A membership are not reduced at age 62.
The benefits based on the member’s Part B1 member are reduced by the distance between retirement and age 65.
Reduction factors
- 3 years early, pension reduction = 13.5
The benefits based on the member’s Part B2, C and D1 membership are reduced by the distance between retirement and NPA (age 67).
Reduction factors
- 5 years early, pension reduction = 20.9
Example 6 – Group 3 member retiring between age 55 and 60
Details
- Date of birth: 16 December 1970
- State pension age (NPA): Age 67 (16 December 2037)
- Joined LGPS: 1 July 1985
- Date of retirement: 15 December 2025 (age 55)
Membership
- Part A: 17 years, 274 days
- Part B1: 6 years
- Part B2: 2 years
- Part C: 4 years
- Part D1: 5 years, 259 days
- Total: 35 years, 168 days
At age 55, the member has 35 completed years membership. 35 + 55 = 90. However, even though this is over 85, as the member is retiring before age 60, the CRA becomes the later of the date the rule of 85 is met or age 60.
The benefits based on the member’s Part A membership are reduced by the distance from retirement to 60:
16 December 2025 to 15 December 2030 = 5 years
Reduction factors
- 5 years early, pension reduction = 20.9, retirement grant = 8.1
The benefits based on the member’s Part B1 membership are reduced by the distance between retirement and age 65.
Reduction factors
- 10 years early, pension reduction = 35.6
The benefits based on the member’s Part B2, C and D1 membership are reduced by the distance between retirement and NPA (age 67).
Reduction factors
- 12 years early, pension female = 41.8
Previously, it was only possible for those members who were a member of the 2014 Local Government Pension Scheme (i.e. those who paid contributions to the scheme after 1 April 2014) to take payment of their benefits between age 55 and 60. Those who were members of the previous schemes (i.e. those who left before 31 March 2014) could access their benefits from age 60 and were only able to have payment of any deferred benefits in the scheme if their employer agreed to the early release.
On 14 May 2018 an overriding amendment was made to all previous Local Government Pension Scheme Regulations (subsequently reamended on 10 January 2019 to correct some drafting errors), which allows those members who left before 31 March 2014 to access their pension benefits voluntarily between age 55 and 60 in the same way as anyone who was a member after 1 April 2014.
For these members, if they would have met the rule of 85 before age 60, the CRA moves to age 60.
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