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Sometimes when a Local Government Pension Scheme (LGPS) member leaves your employment there's a cost to you as the scheme employer. This section will help you to understand the different types of retirement and when you can expect a shortfall cost. Sometimes also referred to as 'strain' costs. You can find out more about how shortfall costs are calculated

Redundancy and business efficiency

When an employee who is a member of the LGPS is made redundant, or retired on the grounds of business efficiency at the age of 55 or older, there will be a cost to the employer. This is because immediate payment of their pension is mandatory and the pension is paid unreduced. The cost of this non-reduction is proportionate to the how far away the member is to their State Pension age (SPA).

The previously announced exit payment cap from 4 November 2020 has now been disapplied by HM Treasury, following their announcement on 12 February 2021.

We recommend that you always request an estimate of the potential shortfall cost from us. Please use the form attached to this page.

Flexible retirement

Flexible retirement is an agreement between the employer and a scheme member to allow the member, subject to being aged 55 or over, to draw their LGPS pension benefits while their employment continues on lesser terms in respect of hours worked or level of responsibility.

All other retirements require the member to leave employment before claiming his or her pension, but flexible retirement may be a useful tool to help with management of a mature workforce and begin to plan for succession while retaining skills. Scheme employers are required to have a policy when it will approve flexible retirement, including whether it will waive any reductions. See our page on employer discretions.

If the member is taking flexible retirement before their normal pension age, their pension and lump sum will normally be paid at a reduced level.

In some instances there may be a shortfall cost to the employer, particularly if the member is under 60. This is because the member may meet the 'rule of 85' protection, which enables some of their benefits to be paid without a reduction. 

We recommend that you always request an estimate of the potential shortfall cost from us. Please use the form attached to this page. 

Voluntary retirement

If the member is 55 or over they'll be eligible to take their pension immediately. An employer can opt to waive the actuarial reduction to the pension benefits and would be invoiced accordingly.

If you wish to receive an estimate for the potential shortfall cost of waiving the reduction, please use the 'redundancy, flexible retirement & serious ill health estimate request' form attached to this page.

Ill health retirement

When a scheme member is granted ill health retirement, payment of the member’s ill health pension is immediate.

The shortfall cost for an ill health retirement is not only linked to the age of the member, but also to any enhancement applied to the pension. Unlike other shortfall costs however, you will not be invoiced by us. The cost is instead reflected in the triennial valuation of the fund and your subsequent employer contribution rate.

The member may also ask a medical professional to complete a DS1500 form, which may help you approve their ill health retirement quicker. Further information about the DS1500 form can be found on the GOV.UK website

If you have any queries about retirement, please contact us.