"Bye now, pay later"
Early retirement within
local authorities briefing
This briefing paper provides an overview of a
report, "Bye now, pay later", which examines
the management of early retirement within local authorities.
The report, by Audit Scotland on behalf of the
Accounts Commission, follows up a 1997 study of the same name
on the management of early retirement decisions for all local
authority staff other than teachers and uniformed police and fire
The report claims that early retirement provides
local authorities with a useful tool for improving efficiency
through reductions in the size of the workforce. It may also be
sought by employees either voluntary or through ill-health.
Within this report these three forms of early
retirement are identified along with the different cost implications
each has on either the employer or the pension fund.
In the case of efficiency/ redundancy and voluntary
retirement the employing authority is liable for the extra costs
on the pension fund. In the case of ill health retirement it is
the pension fund which covers this cost.
There have been a number of legislative and management
changes since 1997 that have impacted on the management of early
retirement. These changes have addressed issues of the 'strain
on the fund', voluntary and ill health retirement as well as accounting
'Strain on the Fund'
This applies to when an employee receives their
pension benefits early, thus putting a strain on the pension fund.
In the case of efficiency/ redundancy and voluntary early retirement
the employing authorities have a duty to address this issue by
making additional payments to the pension fund to reflect the
A further change in voluntary early retirement
is the 'rule of 85'. This affects employees covered by the pension
scheme aged between 50 and 60 who may ask for voluntary retirement,
although the discretion to allow this rests with the employer.
Where the sum of the employee's age and length of service is at
least 85, the employee's benefits will be based on reckonable
service to the date of retirement without reduction.
Before making a decision on an ill health retirement
the employer must now receive a certificate from an independent
registered medical practitioner with a qualification in occupational
health, stating that the employee is permanently incapable of
discharging their current duties. The Disability Discrimination
Act (1995) also requires employers to explore alternative working
arrangements to keep employees in work.
Changes to accounting standards governing the
disclosure of information in financial accounts have introduced
new requirements for disclosure of pensions information.
The main findings from this report were:
1. The number of early retirements has fallen.
Overall these have fallen since 1996. However
while efficiency/ redundancy and ill health retirals have fallen,
voluntary retirals have risen with the introduction of the 'rule
2. Some councils have many more early retirals than others.
The number of early retirals in any single year
can be influenced by a number of factors, particularly any large
scale restructuring within an authority.
Using three-year averages to smooth out the impact
of these factors, Audit Scotland found:
efficiency/redundancy and voluntary retirals
ranged from 3 (0.04%) in Stirling to 236 (1.25%) in Aberdeen City
a range of 30:1
ill-health retirals ranged from 30 (0.41%)
in Argyll & Bute to 175 (1.25%) in Dundee City - a range of
This range is surprising given that all ill-health
retirals now have to be based on independent occupational health
3. The average costs of early retirals also vary.
Three-year averages show:
strain on the fund costs ranged from £1,000
per retiral in Orkney to £45,000 per retiral in East Ayrshire
a range of 45:1
employers have discretion on the number of
added years the average awarded ranged from three to seven.
4. Management of early retirement has improved.
Decisions on efficiency, redundancy and voluntary
retirals are now supported by information on the full costs of
the early retiral.
Average strain costs per case have decreased
from £32,000 to £20,000.
There were three main recommendations from this
report. These were:
1. There should be a clearer framework for decision making.
- Policies on early retirement should be approved by elected
members and reviewed regularly.
2. Informing members
Elected members should receive, at least annually, a report detailing
the number of early retirals along with the associated costs and
savings attached to these retirements.
3. Decision Making
- Individual cases should be appraised to ensure the expected
savings outweigh the costs
- To promote accountability and help monitoring, the costs of
early retirement should be charged to the appropriate service
- In the case of senior staff, elected members should be involved
in approving early retirement decisions.
Action for Branches
This briefing is primarily for information purposes
on the Audit Scotland report on the Management of Early Retirement.
The Audit Scotland report can be found at:
Kenneth McLaren - K.MacLaren@unison.co.uk
Dave Watson - email@example.com
@ The P&I Team
14 West Campbell St
Tel 0845 355 0845
Fax 0141-307 2572