Retirements

What the types of retirement are, what are reductions and what are strain costs?

What are the types of retirement?

In the current, 2014, scheme the normal pension age for each member is their State Pension Age subject to a minimum of age 65.

If a member chooses to retire before their Normal Pension Age (NPA) their pension will be reduced for early payment.

There are different types of retirement:

  • Normal Retirement – Occurs at the age the scheme pays benefits, no reduction to the benefits and no increases.
  • Late Retirement – When a person retires they can draw benefits immediately or can defer payment until a later date, therefore pension increased.
  • Ill Health Retirement – A three tier system where the member must have at least a 2 year vesting period.
  • Early Retirement – The member can elect to retire or receive their pension benefits before their NPA.

Details on how to calculate these benefits and how to identify what retirement is what for your members, please refer to the guide:

Retirement Benefits July 2016 (pdf 29.3mb opens in new window)

What are reductions?

Providing the member has more than two years membership, members may elect to retire and receive their pension benefits at any time from age 55 onwards.

If a member retires before Normal Pension Age their pension is reduced on account they will receive their pension for a longer period of time.

Details of the current reductions are found in the below link on page 37.

Retirement Benefits July 2016 (pdf 29.3mb opens in new window)

In the 2008 Scheme, employer’s consent was needed if a person was under the age of 60 and wished to take their benefits. This is not the case in the 2014 scheme, but it is important that, as retirements at the members own choice between 55 and 59 inclusive is a new scheme facility, Rule of 85 Protection does not automatically apply in full to such cases. Details of the 85 year rule can also be found in the above link, on page 34.

What are strain costs?

Strain costs are a common term used to describe the ‘capital cost of early retirement’.

Money is invested into the administering authority to provide enough money in the future to pay our benefits when they are ready.

If the pension benefits are paid earlier than the expected retirement date, the investment returns won’t be enough to pay the benefits which are due. Where retirement is by the employee’s choice, any early reduction applied to the benefits will negate the capital cost of retirement if they are aged 60 or over, and also, if they are aged under 60 providing the employer does not switch back on the 85 year rule.

Details on how to calculate the a Strain Cost can be found in the link below on page 45.

Retirement Benefits July 2016 (pdf 29.3mb opens in new window)

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