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Questions
and Answers
LOCAL GOVERNMENT PENSION SCHEME (LGPS)
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How likely is it that the proposal will actually happen?
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Only when a Regulation has been signed and laid before
the Scottish Parliament is it law. The proposal could
be altered before the final Regulations are laid.
There is a consultation in England and Wales on a similar
proposal which ends on 28 February 2006. It is important
that UNISON branches respond to the consultation.
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Why is the Scottish Executive so intent on removing the
Rule of 85? |
The UK Government published a Green Paper at the end
of 2002 stating its intention to increase the normal retirement
age to 65 for all public service schemes. Effectively
the Rule of 85 means that a high proportion of the members
of the LGPS can retire without employers consent at 60
and get an unreduced pension. In other words, there is
effectively a normal retirement age of 60.
The immediate reason for the Government and the Scottish
Executive is trying to remove the rule with effect from
1 October 2006 is that it believes that a benefit based
a service qualification and age will not be legal under
anti-ageism legislation that will come into force as a
result of the European Equal Treatment Directive.
UNISON disagrees and the UK legislation has not been
published yet!
UNISON's view was further strengthened
when Katharina von Schnurbein, the EU's spokeswoman on
employment, social affairs and equal opportunities, said
the Scottish executive was wrong. She cited Article 6
of the directive, which states that governments can treat
people differently on the grounds of age in certain circumstances.
Von Schnurbein added: "It's an artificial debate
[and one that] is only going on in Britain. The directive
has no influence on pension value or pension age. It is
completely up to the member state. If they think it is
reasonable for people to retire at 60, under EU law that
is perfectly legal.
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I have heard that other public service schemes have agreed
principles that could include lifetime protection. |
Yes, Alan Johnson, Secretary of State for Work and Pensions,
on 18 October 2005 made an agreement covering teachers',
civil servants' and the NHS pens
- Existing scheme members to suffer no detriment in
normal retirement age or benefits.
- Workforces should be fully informed and there should
be enough time for initial discussions ending March
2006.
- For new staff there would be a new scheme providing
defined benefit (e.g. either final salary or career
average) index linked to price inflation after retirement
with normal retirement age increased to 65 but with
flexibility.
Uniformed police and armed forces scheme members also
have full protection and improvements to their future
scheme.
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THESE CHANGES MEAN TO ME?
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The LGPS already has a Normal Retirement Age of 65 so
why the fuss? |
Since the 1970's, members who had 25 years qualifying
service could retire from age 60 without employer consent
or early payment reduction. This rule was extended by
the rule of 85 in 1998 to allow the same principle to
apply for those allowed by their employer to go before
age 60.
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What is the Rule of 85? |
If age and total membership in whole years amounts to
85 at date of retirement then there is no early payment
reduction.
Total membership includes:-
- Any period that contributions have been paid excluding
any period for which a refund of contributions was taken
on leaving the scheme, and any added years the member
may have purchased.
- Any period of illness or injury and maternity leave
where any pay is received
- The period from the date of leaving the scheme to
the date pension commences (see example in question
30).
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How will this affect members? |
- Many more will qualify to retire at 60 on a unreduced
pension than one would expect
- Most early leavers will qualify to draw unreduced
pension at 60
- Actual service counts for part-time workers, including
paid maternity leave and sick leave - so many will qualify
at 60 for an unreduced pension (see example in question
27).
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So if the Rule of 85 is abolished how will it affect
those who would have been covered? |
Benefits earned after 1 October 2006 would be reduced
if the member could not stay in employment until age 65,
unless retired by the employer on redundancy/efficiency
after the minimum payment age - currently 50 or they retire
on the grounds of ill health at any age.
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Is the Rule of 85 discriminatory and if so what is coming
in its place? |
Because the rule of 85 is based on service qualification
the government is using forthcoming anti-ageism legislation
as an excuse to remove it. Legal advice differs. Even
if it has to be removed in the future for legal reasons,
it could be replaced with lower early retirement reductions
or a lower retirement age for all.
Abolishing the rule without any alternative is likely
to have a disproportionate affect on the low paid, part-time,
mainly women members, they will either have to work to
65 due to the high early retirement reductions, or suffer
the reductions and risk retiring into poverty.
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My employer never allows people to retire early anyway
so what is the change? |
Non-voluntary early retirement before age 60 has always
required employer consent. Members will still be able
to retire on pension without employer consent from age
60. The issue is that if a member with long service goes
before 65 in the future the pension is likely to be much
reduced for early payment'.
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I have decided with my employer that I can retire at
57. Can this still happen? |
Yes, you can still retire with employer consent any time
after the minimum pension age with an immediate pension.
The employer will still have the discretion to waive any
early retirement reduction.
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What about those who have already left or retired? |
Those already on pension or who have left with deferred
benefits before any change will not be affected.
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I want to work until at least the age of 65. Will these
regulations affect me? |
No. Nothing will stop you from working to age 65 as now
without any early retirement reduction. Currently if you
are allowed to stay on after 65, your benefits will be
increased by a late retirement factor. |
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What if I am made redundant at or after the age of 50?
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Good news - there are no proposals to increase the minimum
retirement age at the present time. Until the date of
any change, if you are made redundant over the age of
50, you will be entitled to an immediate pension from
that date, without any early retirement reduction regardless
of the service you accrued. As now, if you are under 50,
you will not get an immediate pension if you are made
redundant, although your employer will still be able to
exercise discretion to bring the pension into payment
early.
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When is this likely to change and what will happen if
I fall on the wrong side of the date of the change? When
will I be able to get my pension? |
Under the Finance Act 2004 all pension schemes have to
increase the minimum retirement age from 50 to 55 by 1
April 2010. If you fall on the wrong side of the date
then your former employer can only exercise discretion
to bring it into payment after the age of 55. You will
able to elect to draw it from 60 but there may be some
early retirement reductions. As now, you will be able
to get the early payment of your deferred benefits at
any age if you become incapable of undertaking the duties
of your former employment on the grounds of permanent
ill health.
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What factors will be used to reduce early retirement
benefits and are they likely to change? |
Early retirement factors are likely to be actuarially
reviewed to take in to account changes in life expectancy.
Currently for members who retire 5 years before age 65
(without qualifying for the rule of 85), the pension would
be reduced by 33% for men 27% for women and the lump sum
would be reduced by 11% for both sexes.
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EXAMPLES
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These examples are based on changes occurring with effect
from 1 October 2006 |
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I am a male aged 29. I will reach age 60 in 2036 with
40 years service. Based on going at 60 and my current
pensionable pay of £12,000 pa. How will the Government
proposals affect me? |
(a) Based on current rules
£6,000 pa plus £18,000 cash sum
(b) Based on the employer proposals from October 2006
reduced to:
£4,540 pa plus £16,540
Note: - Benefits for 10½ years to 31 September 2006 unreduced.
Plus 29½ years service after October 2006 reduced by 33%
for pension 11% for cash sum. |
| I am a
woman aged 50. I will reach 60 in 2015 with 25 years service.
I have always worked half time. My part time pay is £12,500pa
and my whole time equivalent pay of £25,000pa, giving
a proportionately reduced pensionable service of 12.5
years. How will the changes affect me? |
(a) Based on the current rules
£3,906 pa plus £11,718 cash sum
(b) Based on the employer proposals from October 2006
reduced to:
£3,548pa plus £11,280 cash sum
Note: - Benefits arising from 16½ years before October
2006 (counting as 8Ό years for calculation purposes) unreduced.
Benefits arising from 8½ years after October 2006 (counting
as 4Ό years for calculation purposes) reduced by 27% pension
11% cash sum
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I am a man age 35 who is going to join the LGPS in April
2006. Based on my pensionable pay of £40,000 pa,
if the rules change what benefits would I get if I retire
at age 60 after 25 years service? |
(a) If the rules did not
change
£12,500 pa plus £37,500 cash sum
(b) Based on the employers proposals from October
2006
£8,458 pa plus £33,458 cash sum
Note:- Six months benefits before October 2006 remain
unreduced and 24½ years of benefit will be reduced by
33% for the pension and the cash sum by 11% at 60 |
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I am a woman aged 53 at April 2006 on £15,000
with 25 years protected service by age 60 in 2013. I now
wish to retire at age 62 with 27 years service in 2015
(after the end of the protections). How would the new
proposals affect me? |
(a) If rules did not change
£5,062.50pa plus £15,187.50 cash
(b) Based on the revised proposals
£4,995 pa plus £15,109 cash
Note: - See answer to question 21. |
| I am a
women aged 20 and reach 60 in 2045. I am likely to leave
in 6 years time on £20,000 pa with 10 years
service. How would it affect me if I draw my pension at
60? |
(a) If rules did not change
£2,500pa plus £7,500 cash
(b) Based on the proposals from October 2006
£2,129.50 plus £7,046.50 cash
Note: Despite only working 10 years the period from the
date of leaving to the date of retirement counts towards
the rule of 85 so most early leavers after the date of
the change would lose out. |
| I am a
woman aged 43. I will reach 60 in 2022 with 23 years service
on £20,000 pa. How will it affect me if I go at
60? |
(a) If rules did not change
£5,347 pa plus £15,922 cash sum
(b) Based on the employee proposals from October 2006
£4,547 pa plus £15,825 cash sum
Note: Under the current rules if the member retired at
60 she would be 1.5 years short of the rule of 85 (age
61.5 plus service 23.5 years service = 85) therefore her
pension would be reduced by 10% and her cash sum by 3.5%.
Based on post October 2006 pension arising from the 15½
years after that date would be reduced by 27% and the
cash sum by 11%. |
| How can
I calculate the effect on me? |
Hopefully the above examples
will help give you some idea. Below are the current factors
in the LGPS that will be used to reduce your post October
2006 service, if you plan to retire before 65. If you
are not fully covered by the rule of 85 at present (e.g.
if you have less than 25 years service at 60), then all
your pension and cash sum would be reduced by the appropriate
factor if you retired before 65 (see question 31). If
you don't qualify for the rule of 85 the reduction will
be the same on both pre and post 2006 service |
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REDUCTION FACTORS IN THE LGPS
Using the factors which are currently in the LGPS, the reductions
for retirement before age 65 would be as follows: -
| Number
of years before age 65 |
Percentage Reduction |
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Retirement Pension |
Lump
sum |
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Men
|
Women
|
Both
Sexes |
| 0 |
0 |
0 |
0 |
| 1 |
8 |
7 |
2 |
| 2 |
15 |
13 |
5 |
| 3 |
22 |
18 |
7 |
| 4 |
28 |
23 |
9 |
| 5 |
33 |
27 |
11 |
| 4 |
28 |
23 |
9 |
| 5 |
33 |
27 |
11 |
| 6 |
37 |
31 |
14 |
| 7 |
40 |
35 |
18 |
| 8 |
43 |
39 |
21 |
| 9 |
46 |
42 |
24 |
| 10 |
48 |
45 |
26 |
NB Where the number of years before age 65 is not an
exact number (i.e. 4 years and 6 months) the necessary interpolations
are made in the table. For 4 years 6 months, for example, the
percentage reduction would be 30.5% for a man and 25% for a
woman. The lump sum percentage reduction would be 10%.
This document has been prepared by Glyn
Jenkins Head of Pensions UNISON and adapted for the Scottish
position by the P&I team. Members should be able to receive
more detailed information about their own benefits from their
employers' pension department.
20 January 2006
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Focus on the proposal
to abolish the Rule of 85
This FAQ deals only with the issue as it applies in Scotland. P
& I Briefing 132 provides an update on proposed changes
to the Local Government Pension Scheme in Scotland. Essentially
the Minister for Finance and Public Service Reform has stated that
the Rule of 85 will be abolished. There are currently no proposed
regulations or consultation issues on this subject yet in Scotland.
However there are draft regulations concerning changes
to the LGPS in England and Wales. A FAQ on these changes are available
from the UK UNISON website. The Scottish Executive/ Scottish Public
Pensions Agency are likely to make similar changes.
The rest of this briefing examines the issue of
the abolition of the rule of 85 only.
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