Retirement options

Voluntary retirement

The normal pension age from the 2015 Fire Pension Scheme is age 60. This is the earliest date that you could leave active employment and receive all of your benefits in full.

If you have transitioned from the 1992 Fire Pension Scheme into the 2015 Fire Pension Scheme your pension will be made up of two sets of benefits. You can make different decisions for each set.

1992 benefits

Your 1992 benefits are payable when:

• you are age 50 with at least 25 years service or
• you are age 55

If you retire before you are age 55 and you do not have 30 years calendar service your commutation lump sum from the 1992 scheme will be restricted to 2¼ times your 1992 annual pension.

2015 benefits

Your 2015 benefits are payable at age 60. This is the date that this portion of your benefits is payable in full.

If you retire before age 55 there is no option to have your 2015 benefits paid immediately and they would become a deferred pension; payable in full at State Pension Age.

If you retire between age 55 and 60, rather than having your 2015 pension paid immediately with reductions, you could choose to defer it. This means that your 2015 benefits only would be a deferred pension, payable in full at State Pension Age.

If you retire from age 55, it is possible have your 2015 benefits paid immediately but they would be subject to percentage reductions. These reductions are based on the number of years and months between your age at date of retirement and age 60 and reduce the closer you get to age 60.

The early retirement reduction factors for an retirement from active service can be found in section 2 of the GAD guidance - Early payment reductions.

Example – How an early reduction percentage is worked out for active retirement

A: Age at date when benefits are paid = 55 years 0 months

B: Normal Pension Age = 60 years

Number of years and months between A and B = 5 years 0 months

Early reduction factor = 0.787

Percentage reduction = 1 – 0.787 = 0.213 x 100 = 21.3%

Ill health retirement

You may receive your pension early if you have to leave your job because of ill health. Speak to your employer if you think you may be entitled to receive your pension on ill health grounds. It is the employer’s responsibility to determine if you are entitled to an ill health pension.

The conditions which have to be met for an entitlement to an ill health pension are as follows:

For a Lower Tier Ill Health Pension you must:

• have a minimum of 3 months qualifying service
• be incapable of performing any of the duties of the role in which you were last employed, because of incapacity of mind or body which will continue until normal pension age (60)

For a Higher Tier Ill Health Pension you must:

• have a minimum of 5 years qualifying service
• be entitled to a Lower Tier Ill Health Pension
• also, because of incapacity of mind or body which will continue until normal pension age, be incapable of undertaking regular employment*.

*Regular employment means employment for at least 30 hours a week on average over a period of not less than 12 consecutive months, beginning with the date on which the issue of your capacity for employment arises.

A Higher Tier Ill Health Pension is payable immediately, with no reductions and will be based on the Lower Tier Ill Health Pension plus an enhancement of 2% of the gross Lower Tier Ill Health Pension before any commutation multiplied by your assumed period of pensionable service from date of retirement to normal pension age.

Example – Lower Tier Ill Health Pension

Earned pension before commutation = £10,000

Pension after commutation = £8,000

Annual pension payable = £8,000

Example – Higher Tier Ill Health Pension

Earned pension before commutation = £10,000

Pension after commutation = £8,000

Period of assumed pensionable service from date of retirement to age 60 = 20 years

The Higher Tier Ill Health Pension element is calculated as:

Lower Tier Ill Health Pension + 2% x earned pension before commutation x period of assumed pensionable service

= Lower Tier Ill Health Pension + 2% x £10,000 x 20

= £8,000 + £4,000

Total gross pension payable = £12,000

Exchange pension for lump sum (Commutation)

When you retire, you can if you wish, exchange part of your annual pension entitlement to receive a lump sum payment. This is called commutation.

If you have transitioned from the 1992 Fire Pension Scheme into the 2015 Fire Pension Scheme your pension will be made up of two sets of benefits. You can make different decisions about your commutation for each set.

1992 benefits

The commutation factor is based on your age in years and complete months at the date of retirement.

The commutation factors for retirement from 1992 Fire Pension Scheme can be found in the GAD guidance - commutation on retirement.

If you retire before you are age 55 and you do not have 30 years calendar service (and it’s not an ill health retirement), the maximum commutation lump sum from the 1992 scheme that you can receive will be restricted to 2¼ times your 1992 annual pension. In all other cases, you can commute up to a maximum 25% of your pension to provide a lump sum.

HMRC will allow you to take 25% of the total value of your crystallised benefits as a tax free lump sum, this is called the authorised payment. If the commutation factor that applies to you is above 20.0 (currently anyone under age 61), you will exceed this limit if you commute the maximum available.

You can either:

• elect to commute the maximum amount possible and pay a tax charge on the amount over 25% of the total value of your crystallised benefits. This is called an unauthorised payment tax charge (see example below), or
• elect to commute the maximum HMRC amount allowed, therefore avoiding the tax charge, or
• commute any amount of your choosing (up to the maximum allowed), or
• commute nothing

Example – Calculating the Maximum Scheme commutation

Gross retirement pension = £15,000
Age at date of retirement = 53 years 0 months
Commutation factor = 22.8
Commutation option = maximum 25% 

Commuted pension = £15,000 x 25% = £3,750

Annual pension payable = £15,000 - £3,750 = £11,250

Lump sum = £3,750 x 22.8 = £85,500

Calculating the unauthorised payment 

Total value of crystallised benefits = (£11,250 x 20*) + £85,500 = £310,500
(* 20 is a factor set by HMRC) 

25% maximum HMRC authorised payment = £310,500 x 25% = £77,625

Unauthorised payment = £85,500 - £77,625 = £7,875

Tax charge = £7,875 x 40%** = £3,150 
(**40% tax charge is set by HMRC and is not related to your personal tax situation)

Benefits payable after tax charge are:

Annual pension payable = £11,250

Lump sum = £85,500 - £3,150 = 82,350

An example of how to calculate the maximum benefits within HMRC limits so that no unauthorised tax charge is payable can be found in the GAD guidance - commutation on retirement.

2015 benefits

Commutation is at a fixed rate of 12:1 which means that for every £1 of annual pension you give up you get £12 of lump sum.

The only pension that cannot be commuted is a Higher Tier Ill Health Pension

Example – Commutation from 2015 Scheme

Retirement pension = £8,000
Commutation option = maximum 25%
Commuted pension = £8,000 x 25% = £2,000

Annual pension payable = £8,000 - £2,000 = £6,000

Lump sum = £2,000 x 12 = £24,000

Two pension entitlement

A regular firefighter whose pensionable pay is reduced more than 3 years before retirement date (and after 31 March 2007) may be eligible for Two Pension Entitlement, also known as Split Pension. This can only apply to your 1992 Fire Pension Scheme portion of benefits.

The reduction in your pensionable pay may be as a result of:

• taking up a different role (excluding temporary promotions)
• becoming entitled to a different rate of pay in your existing role (excluding temporary promotions)

And consequently, the pensionable pay taken into account at normal pension age for the calculation of your pension will be less than it otherwise would have been, The Two Pension Entitlement offers a form of protection by splitting your pension entitlement into two parts, one based on membership accrued before the pay reduction and one based on membership accrued afterwards.

If you have had a withdrawn pensionable allowance restored to you or you have been permanently promoted with an associated increase in pay then by the time you retire, the Two Pension Entitlement may no longer be advantageous to you.

Additional pension benefits

An Additional Pension Benefit (APB) is an amount of pension paid at the same time, and in addition to, a firefighters main pension.

APBs are awarded whilst you are a member of the 1992 Fire Pension Scheme in respect of:

• Long Service Increments (LSI)
• contributions paid on Continual Professional Development (CPD) payments
• contributions paid on the increase in pensionable pay as a result of a Temporary Promotion. This is only applicable where your Fire and Rescue Authority has deemed Temporary Promotions to be pensionable

APBs in respect of CPD payments or Temporary Promotions are calculated annually using Government Actuary Department (GAD) factors, the relevant factor is dependent on your age last birthday. The total accrued value of these APBs are increased each April in line with the Consumer Price Index (CPI).

Protected pension age

In 2010 changes were made to the Finance Act 2004 which changed the minimum pension age from 50 to 55. The 1992 Fire Pension Scheme has a Protected Pension Age (PPA) of 50 meaning that you can still retire voluntarily from age 50 with at least 25 years service, without incurring additional tax implications.

To retain your PPA, if you are planning to retire voluntarily before age 55 then you must resign from all employments with any Fire and Rescue Authorities at the same time, this includes any employments as a retained firefighter, or civilian roles. You must have a break in employment of at least a one month, before you are re-engaged in any position with any Fire and Rescue Authority.

If you do not have the necessary break in employment then tax charges of up to 55% will apply to your commutation lump sum and on all pension payments paid up to the minimum pension age of 55.

Claim your pension

There are a few things that you can do to ensure that there are no delays with paying your pension.

You should inform your manager that you are retiring. It is preferable, but not essential that you give two months’ notice so that your employer and Hampshire Pension Services have enough time to prepare your retirement benefits.

Your manager will inform your employer's payroll provider and in turn they will prepare the necessary leaver form with your pay and service details and send to Pension Services.

You will need to complete the Retirement Declaration form and return to Hampshire Pension Services, together with any relevant certificates.

Hampshire Pension Services will process your retirement within 15 working days of receiving all the necessary paperwork from both you and your employer. They will send you written notification of your actual retirement benefits.