Managing change policy

Pension benefits and the LGPS

Section One is in two parts:

  • Part A is for pensionable employees age 55 or over, having two or more years of pension scheme membership, for the relevant pension scheme regulations
  • Part B is for pensionable employees under age 55

Section Two shows the additional compensatory payments which are payable whether the employee is a member of the pension scheme or not.

Section One – pension benefits

Part A - Over 55s

The pension regulations provide for the immediate payment of accrued benefits to pensionable employees aged 55 or over. They must have a minimum period of two years' pension scheme membership when employment ends:

  • by redundancy
  • in the interests of the efficient discharge of the employer's functions

Local government pension scheme (LGPS)

For each year built up in the scheme to 31 March 2008:

  • annual pension - this is 1/80th of final pensionable pay for each year of scheme membership. Odd days count as 1/365th of a year
  • lump sum - this is 3/80ths of final pensionable pay for each year of scheme membership. Odd days count as 1/365th of a year

For each year built up in the scheme from 1 April 2008 to 31 March 2014:

  • annual pension – this is 1/60th of final pensionable pay for each year of scheme membership. Odd days count as 1/365th of a year
  • There is no automatic lump sum, but there is an option to give up pension on the basis for each £1 of pension relinquished. We will pay a tax-free lump sum of £12. HM Revenue and Customs limits will apply

In this scenario, the final payment is usually the amount of the retiring employee's full average salary over the last year of service.

For each year built up in the scheme from the 1 April 2014:

  • annual pension – this is 1/49th of the actual pensionable pay received for the main scheme and 1/98th for the 50/50 scheme. For more details, read the scheme guide
  • There is no automatic lump sum, but there is an option to give up pension on the basis for each £1 of pension relinquished. We will pay a tax-free lump sum of £12. HM Revenue and Customs limits will apply

Part B - Under 55s

The pension regulations do not provide for the early release of retirement benefits until individuals reach age 55.  

We will preserve any retirement benefits accrued under the LGPS until the individual gets to age 55. The preserved benefits are index-linked, in line with the consumer price index. This is from the date of leaving the scheme until the date they became payable.  

Other choices may also be available. If an employee wants any further guidance, they can contact the pension section directly.

Section two – Additional compensatory payments

Redundancy

Whether an employee is entitled to receive their pension or not, they are entitled to receive a compensatory lump sum payment for redundancy. This also applies to employees who are not members of the pension scheme. 

An employee being made redundant with at least two years' continuous service in local government is entitled to a redundancy payment. This is in line with the Employment Rights Act 1996.

We recognise continuous service with us, and our predecessor authorities, for an employee's continuous periods of employment.    

The scale of payment is:

  • up to age 21 - 0.5 week's pay for each completed year of service 
  • 22 to 40 years of age - 1 week's pay for each completed year of service
  • 41+ years of age - 1.5 weeks' pay for each completed year of service

Under the LGPS compensatory regulations, we will enhance the statutory redundancy payment to a maximum of 66 weeks. We will base a week's pay on actual pay, not the statutory amounts.

We will make payments in line with the enhanced redundancy payments ready reckoner.  We will embrace any redundancy payment made under the provisions of the Employment Rights Act 1996.

For pension scheme members

The definition of service is 'service qualifying for pension purposes'. It is the reckonable period an employee has been a member of the pension scheme. It includes service brought in from other pension schemes up to and including 31 March 2014.  

Changes to the pension scheme on 1 April 2014 mean that there is no longer a pensionable service. LGPS members who join the scheme from April 2014 will not have any pensionable reckonable service. 

LGPS members before 31 March 2014 will have their redundancy payment calculated using both pensionable reckonable and continuous service. 

If using the continuous service date is more beneficial to the employee, we will use this instead.

LGPS members from 1 April 2014 will have their redundancy payment calculated on continuous service only.    

For non-pension scheme members

Service is defined as 'continuous service reckoning backwards from the date of redundancy'. No payment is due for a fraction of a year.

An employee cannot receive a redundancy payment if they accept an offer of employment from any local authority (or other specified body listed on the Redundancy Payments Modification Order) if:

  • under the notice of redundancy
  • and, commencing within four weeks of the date of redundancy

If an employee is unsure if this provision applies to them, they should seek advice from HR.

Multiple employments

An employee may have more than one employment contract. If any of these contracts are ended by redundancy, we will assess each contract separately for redundancy payment eligibility. 

We will use the continuous service date from the original contract and the start date in the post for additional contracts. However, we will maintain the original date of continuous employment for contractual entitlements such as annual leave, sick pay and maternity leave. 

An employee will always need at least two years of continuous employment in any separate contract to qualify.

Teachers' pension scheme members

If teaching staff are made redundant, they will receive a redundancy payment (subject to meeting the qualifying criteria). 

Their payment will be as per the enhanced redundancy payments ready reckoner if they are:

  • under age 55
  • or, over age 55 and not a member of the teachers' pension scheme

Their payment will be as per the statutory redundancy payments if they are:

  • aged between 55 and 60, and a member of the teachers' pension scheme

There will be an automatic release of full pension benefits.  

Under the pension scheme regulations, there is the option of an award of compensatory added years. This is up to the value of the difference between redundancy entitlements under the enhanced and statutory tables. This figure is converted into an equivalent value of pension made up of both a lump sum and annual pension.

Alternatively, employees can choose to have enhanced redundancy entitlement. This would mean they are not entitled to full pension benefits. An individual can:

  • take an actuarially reduced benefit (ARB)
  • defer their pension under the terms of the teachers' pension scheme

Interests of efficiency

We do not normally exercise discretion to award payments under these criteria. Only accrued pension benefits are released for those meeting minimum pensionable age criteria.

Only in exceptional circumstances may a business case be submitted for consideration by the director of resources for corporately employed staff.  This includes centrally employed teachers and the director of children's services for schools

The business case must demonstrate savings and benefits to the council.  

If approved, the regulations permit boosting of pension benefits to a maximum of £6,755 additional pension each year to a maximum that could have been achieved at normal retirement age.

As this is discretionary, our policy is to award additional pension in exceptional cases only.