Change of Pension Regulations - Exit Payment Cost Cap

Oct 13 2020

The Government are making changes to the way exit payments are made to Public Sector workers and this has resulted in the need for changes to the LGPS regulations.

What are the proposed changes?

The changes will affect any member leaving the LGPS on redundancy grounds.

Currently, a worker retiring from the LGPS on redundancy grounds from age 55 will typically get;

  • Immediate payment of LGPS benefits unreduced
  • Statutory redundancy payment (SRP)
  • Discretionary compensation (decided by their employer based on limits within the Compensation Regulations)

Paying benefits early and unreduced causes a shortfall in pension funding. The employer has to make up this shortfall by paying a "pension strain charge".

The proposal is that an employee aged 55 or over would not be able to receive both an unreduced pension and redundancy payment (whether statutory or discretionary). This is because:

  • In order to receive an unreduced pension, the member must make a payment towards the pension strain charge, equal to their SRP, thus in effect giving up their SRP (although technically the SRP must be paid).
  • The proposals explicitly state that if the employer pays any part of the pension strain charge then they may not arrange for any discretionary compensation.

The proposals also suggest that:

  • A member may choose to take their pension actuarially reduced so that they can receive the discretionary compensation under their employer's scheme
  • A member will be able to choose to defer their pension in order to receive the discretionary compensation under their employer's scheme.

Who is affected?

The new LGPS regulations are likely to cover:

  • Council workers
  • Police and fire civilians
  • Academies (possibly)
  • FT and HE colleges (possibly)

You can find more information about the proposed changes here

We will provide further updates once the proposed changes to the LGPS regulations are confirmed.