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 understand the different types of retirement and when you can expect a shortfall cost. You might also know shortfall costs as 'strain' costs. You can find out more about how shortfall costs are calculated.
Redundancy and business efficiency
There can be a shortfall for members aged 55 or over when made redundant or retire on the grounds of business efficiency. This is because the pension is paid unreduced on these grounds and must be paid immediately. The cost for waiving the reduction is worked out on how early the retirement is before the member’s State Pension age (SPA).
How to request a shortfall estimate
You should always request an estimate of the potential shortfall cost from us. Please use the form attached to this page.
To enable us to provide the retirement figures, we require confirmation from an authorised signatory.
Flexible retirement
Flexible retirement is agreed between the employer and a scheme member. It allows members who are 55 or over to take their pension benefits whilst still working. Their employment is usually on lesser terms in respect of hours worked or level of responsibility.
All other types of retirement need the member to leave employment before claiming their pension, so flexible retirement can be a useful tool to help with:
- offering phased retirement
- supporting succession planning
- retaining skills
Flexible retirement and your employer discretions policy
Scheme employers need to include flexible retirement in their employer discretions policy. This includes whether you will waive any reductions. More information is available on our employer discretions page.
If you agree to a 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. This can happen if the member is under 60, as they may meet the 'rule of 85' protection. The rule of 85 may enable some of their benefits to be paid without a reduction.
How to request a shortfall estimate
You should always request an estimate of the potential shortfall cost from us. Please use the form attached to this page.
To enable us to provide the retirement figures, we require confirmation from an authorised signatory.
Voluntary retirement
If a member is 55 or over when they leave employment, they are entitled to take their pension immediately. You can choose to waive the actuarial reduction to the pension benefits and would receive an invoice.
If you wish to receive an estimate for the potential shortfall cost of waiving the reduction, please use the form attached to this page.
Ill health retirement
When members are too ill to work and are granted ill health retirement, their pensions are payable from their last day of service.
The shortfall cost for an ill health retirement is linked to the age of the member, and also to any enhancement applied to the pension. Unlike other shortfall costs, we won’t invoice you. The cost is instead reflected in the triennial valuation of the Fund and your future employer contribution rate.
DS1500 form
The member may also ask a medical professional to complete a DS1500 form. This 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.
Links to useful documents