Redundancy retirement process - age 55 plus

Approval

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

Under current LGPS regulations, you pension benefits will be calculated up to your date of redundancy and released without an early retirement percentage reduction being applied. Please see the note on exit cap below.


 

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.


 

Estimate requests   Back to top

As redundancy retirement is subject to your employer's approval, we are unable to provide estimates or confirm retirement on grounds of redundancy retirement to you directly. All requests must come from your employer.

You should talk to your line manager and your employer's human resources department and if they agree to release a redundancy estimate they will contact the Pension Fund.

You should talk to your line manager and your employer's human resources department and if they agree to release a redundancy estimate they will contact the Pension Fund.

On receipt of the notification from your employer, the Fund will issue you with the following information or documents:

  • a pension estimate detailing the pension options available to you should you leave employment due to redundancy

 

Once approved   Back to top

You and your employer will agree a date that your contract of employment will be terminated.


 

Payment of your pension benefits   Back to top

For Staffordshire Pension Fund to process your pension benefits and arrange payment the following must happen:

Action by employer

Your employer must complete and return a leaver form which includes your salary details for the current year up to the date your contract is terminated.

Please note: due to the timing of your employer's payroll, your employer may not be in a position to submit a completed leaver form until about 6-8 weeks after you have left employment.

Action by Staffordshire Pension Fund

On receipt of the fully completed leaver form from your employer, the Staffordshire Pension Fund will arrange the following:

  • provide you with your pension options (you must complete the pension option form and return it to the Fund)
     
  • bank details form for you to be complete and return to the Fund
     
  • lifetime allowance declaration – completion and return to the Fund is required by HM Treasury and Customs. This form will ask you to provide details of all other pensions (except state pensions), you are in receipt of or due to receive in the future
     
  • copy of your birth certificate, plus if applicable copies of your marriage, civil partnership certificates and spouses birth certificate to be forwarded to the Fund
     
  • nomination of beneficiary form for the lump sum death grant form to be complete and return to the Fund
     
  • general data protection regulations consent form to be complete and return to the Fund

Please note: from receipt of the completed leaver form to the Fund issuing the above documentation you should allow 10 working days.

Action by you

You must complete and sign the required forms and certificates and return to the Staffordshire Pension Fund in the envelope provided.

Payment of your monthly pension and lump sum

On receipt of your signed and completed forms together with the relevant birth certificates etc., the Fund will:

  • arrange payment of your tax-free pension lump sum into your bank or building society. Please allow 13 working days from the date the Fund receives your completed forms
     
  • arrange payment of your monthly pension will take place on the next available pay date, together with any arrears of pensions
     
  • write to you confirming the tax-free pension lump sum paid into your bank or building society, together with information regarding payment of your monthly pension

 

Overall timescales   Back to top

As you will note from the date you change your contract of employment, there are several steps or actions that need to take place before you will receive payment of your monthly pension and tax-free lump sum.

Please note: you should allow between 2 and 3 months for the process to be completed.

Under the pension regulations, if payment of your tax-free lump sum is made more than one month after your retirement date, the Fund will pay interest of 1% per annum above the Bank of England base rate calculated for each day the lump sum is delayed.

The monthly pension attracts no interest for late payment. The exception to this is if the annual pension is not paid within the first year following your retirement date.

Please note: your monthly pension is deemed to be taxable income and will be subject to tax deductions in accordance with the Her Majesty's Revenue and Customs rules.


 

Further information   Back to top

If you need any further information about the areas covered by these notes, please contact us.