Flexible retirement

Remember, an employer can agree to a member reducing their hours or grade without allowing the release of pension benefits.

Also, each employer will have a published policy in place to determine the circumstances where flexible retirement is permissible.

Not only does the member need to be aware of the value of their pension before they formally request flexible retirement, it is crucial that the employer is aware of whether there are any costs involved before they can agree to it.

In order to help each employer determine whether release of pension is possible, particularly if your employer has decided upon a ‘no-cost to the employer’ approval policy, on receipt of the FR1 form, the Pensions Section will provide the employer with details of whether there are any costs involved, and the member will receive a forecast of the benefits they would receive.

Members should be aware that these reductions can sometimes be quite large. Remember, if a member takes a reduced pension, it will remain reduced for the rest of the member’s life, even when they finish work and lose their salary.

Once the flexible retirement has been approved, you will need to complete the form FR2 and forward it to the Pensions Section. You will need to confirm the date of change, and details of the new contract. IMPORTANT: You will also need to inform your Payroll Section so that they can send an ePen3 form to the Pension Section.

If a member is paying AVCs, or ARCs or APCs or purchasing additional service, payroll staff must always assume that these additional contributions will cease on the date of change unless instructed otherwise.

In the unlikely event of a flexible retirement being approved with a capital cost, additional verification must come from the appropriate level, e.g. Head of Finance, Departmental Director, Chief Executive etc.

With the LGPS being a scheme whereby the pension benefits are worked out on a career average basis, using a member’s actual pay for each year that they are in the scheme, this is a very fair way of working out the pension. Increases and decreases in hours are accommodated well, and a member will always receive a pension which is fairly linked to what they have worked and been paid for in that year. The LGPS is no longer a scheme that is all about the pay that the member ends up on just before retirement.

For members who were in the scheme prior to 1 April 2014, and have an element of their pension linked to membership and the old definitions of pay and service, they can rest assured that their final whole time equivalent pay will be used to calculate this element of the pension benefits. Therefore members can drop their hours and still continue paying into the scheme without it affecting the benefits that they built up previously. This is because the Regulations reflect a Governmental guarantee that the final salary link would be maintained for members who joined the scheme before 31 March 2014.

And so it could be that they may then be happy to drop their hours without drawing the pension, as long as a drop in grade does not occur.

Even those who drop their grade do not need to rush into anything and apply for flexible retirement and draw on the pension.

For members who were in the scheme prior to 1 April 2014 who see a reduction in grade we will use best of the last 3 years final pay when calculating pension benefits. A period further back may also be selected should a reduction have taken place within the last 10 years before retirement, but as this involves an average pay calculation a scheme member may wish to talk the matter over with the Pension Section before making this decision. There are also specific conditions that must apply to the use of this regulation.

If they are likely to suffer a reduction to benefits by retiring before state pension age, staying in the scheme for as long as possible and not drawing on the pension will mean less of a reduction for every extra day they remain in the scheme.