UNISON Scotland Protecting Our Pensions FAQs

How likely is it that the proposal will actually happen?

Only when a Regulation has been signed and laid before the Scottish Parliament is it law. The proposal could be altered before the final Regulations are laid.

There is a consultation in England and Wales on a similar proposal which ends on 28 February 2006. It is important that UNISON branches respond to the consultation.

top

Why is the Scottish Executive so intent on removing the Rule of 85?

The UK Government published a Green Paper at the end of 2002 stating its intention to increase the normal retirement age to 65 for all public service schemes. Effectively the Rule of 85 means that a high proportion of the members of the LGPS can retire without employers consent at 60 and get an unreduced pension. In other words, there is effectively a normal retirement age of 60.

The immediate reason for the Government and the Scottish Executive is trying to remove the rule with effect from 1 October 2006 is that it believes that a benefit based a service qualification and age will not be legal under anti-ageism legislation that will come into force as a result of the European Equal Treatment Directive.

UNISON disagrees and the UK legislation has not been published yet!

UNISON’s view was further strengthened when Katharina von Schnurbein, the EU’s spokeswoman on employment, social affairs and equal opportunities, said the Scottish executive was wrong. She cited Article 6 of the directive, which states that governments can treat people differently on the grounds of age in certain circumstances.

Von Schnurbein added: "It’s an artificial debate [and one that] is only going on in Britain. The directive has no influence on pension value or pension age. It is completely up to the member state. If they think it is reasonable for people to retire at 60, under EU law that is perfectly legal.

top

I have heard that other public service schemes have agreed principles that could include lifetime protection.

Yes, Alan Johnson, Secretary of State for Work and Pensions, on 18 October 2005 made an agreement covering teachers’, civil servants’ and the NHS pens

Existing scheme members to suffer no detriment in normal retirement age or benefits.

Workforces should be fully informed and there should be enough time for initial discussions ending March 2006.

For new staff there would be a new scheme providing defined benefit (e.g. either final salary or career average) index linked to price inflation after retirement with normal retirement age increased to 65 but with flexibility.

Uniformed police and armed forces scheme members also have full protection and improvements to their future scheme.

SO WHAT WOULD THESE CHANGES MEAN TO ME?

top

The LGPS already has a Normal Retirement Age of 65 so why the fuss?

Since the 1970’s, members who had 25 years qualifying service could retire from age 60 without employer consent or early payment reduction. This rule was extended by the rule of 85 in 1998 to allow the same principle to apply for those allowed by their employer to go before age 60.

top

What is the Rule of 85?

If age and total membership in whole years amounts to 85 at date of retirement then there is no early payment reduction.

Total membership includes:-

Any period that contributions have been paid excluding any period for which a refund of contributions was taken on leaving the scheme, and any added years the member may have purchased.

Any period of illness or injury and maternity leave where any pay is received

The period from the date of leaving the scheme to the date pension commences (see example in question 30).

top

How will this affect members?

Many more will qualify to retire at 60 on a unreduced pension than one would expect

Most early leavers will qualify to draw unreduced pension at 60

Actual service counts for part-time workers, including paid maternity leave and sick leave - so many will qualify at 60 for an unreduced pension (see example in question 27).

top

So if the Rule of 85 is abolished how will it affect those who would have been covered?

Benefits earned after 1 October 2006 would be reduced if the member could not stay in employment until age 65, unless retired by the employer on redundancy/efficiency after the minimum payment age - currently 50 or they retire on the grounds of ill health at any age.

top

Is the Rule of 85 discriminatory and if so what is coming in its place?

Because the rule of 85 is based on service qualification the government is using forthcoming anti-ageism legislation as an excuse to remove it. Legal advice differs. Even if it has to be removed in the future for legal reasons, it could be replaced with lower early retirement reductions or a lower retirement age for all.

Abolishing the rule without any alternative is likely to have a disproportionate affect on the low paid, part-time, mainly women members, they will either have to work to 65 due to the high early retirement reductions, or suffer the reductions and risk retiring into poverty.

top

My employer never allows people to retire early anyway so what is the change?

Non-voluntary early retirement before age 60 has always required employer consent. Members will still be able to retire on pension without employer consent from age 60. The issue is that if a member with long service goes before 65 in the future the pension is likely to be much reduced for ‘early payment’.

top

I have decided with my employer that I can retire at 57. Can this still happen?

Yes, you can still retire with employer consent any time after the minimum pension age with an immediate pension. The employer will still have the discretion to waive any early retirement reduction.

top

What about those who have already left or retired?

Those already on pension or who have left with deferred benefits before any change will not be affected.

top

I want to work until at least the age of 65. Will these regulations affect me?

No. Nothing will stop you from working to age 65 as now without any early retirement reduction. Currently if you are allowed to stay on after 65, your benefits will be increased by a late retirement factor.

top

What if I am made redundant at or after the age of 50?

Good news - there are no proposals to increase the minimum retirement age at the present time. Until the date of any change, if you are made redundant over the age of 50, you will be entitled to an immediate pension from that date, without any early retirement reduction regardless of the service you accrued. As now, if you are under 50, you will not get an immediate pension if you are made redundant, although your employer will still be able to exercise discretion to bring the pension into payment early.

top

When is this likely to change and what will happen if I fall on the wrong side of the date of the change? When will I be able to get my pension?

Under the Finance Act 2004 all pension schemes have to increase the minimum retirement age from 50 to 55 by 1 April 2010. If you fall on the wrong side of the date then your former employer can only exercise discretion to bring it into payment after the age of 55. You will able to elect to draw it from 60 but there may be some early retirement reductions. As now, you will be able to get the early payment of your deferred benefits at any age if you become incapable of undertaking the duties of your former employment on the grounds of permanent ill health.

top

What factors will be used to reduce early retirement benefits and are they likely to change?

Early retirement factors are likely to be actuarially reviewed to take in to account changes in life expectancy. Currently for members who retire 5 years before age 65 (without qualifying for the rule of 85), the pension would be reduced by 33% for men 27% for women and the lump sum would be reduced by 11% for both sexes.

top

EXAMPLES

These examples are based on changes occurring with effect from 1 October 2006

I am a male aged 29. I will reach age 60 in 2036 with 40 years service. Based on going at 60 and my current pensionable pay of £12,000 pa. How will the Government proposals affect me?

(a) Based on current rules

£6,000 pa plus £18,000 cash sum

(b) Based on the employer proposals from October 2006 reduced to:

£4,540 pa plus £16,540

Note: - Benefits for 10½ years to 31 September 2006 unreduced. Plus 29½ years service after October 2006 reduced by 33% for pension 11% for cash sum.

I am a woman aged 50. I will reach 60 in 2015 with 25 years service. I have always worked half time. My part time pay is £12,500pa and my whole time equivalent pay of £25,000pa, giving a proportionately reduced pensionable service of 12.5 years. How will the changes affect me?

(a) Based on the current rules

£3,906 pa plus £11,718 cash sum

(b) Based on the employer proposals from October 2006 reduced to:

£3,548pa plus £11,280 cash sum

Note: - Benefits arising from 16½ years before October 2006 (counting as 8¼ years for calculation purposes) unreduced. Benefits arising from 8½ years after October 2006 (counting as 4¼ years for calculation purposes) reduced by 27% pension 11% cash sum

I am a man age 35 who is going to join the LGPS in April 2006. Based on my pensionable pay of £40,000 pa, if the rules change what benefits would I get if I retire at age 60 after 25 years service?

(a) If the rules did not change

£12,500 pa plus £37,500 cash sum

(b) Based on the employers proposals from October 2006

£8,458 pa plus £33,458 cash sum

Note:- Six months benefits before October 2006 remain unreduced and 24½ years of benefit will be reduced by 33% for the pension and the cash sum by 11% at 60

I am a woman aged 53 at April 2006 on £15,000 with 25 years protected service by age 60 in 2013. I now wish to retire at age 62 with 27 years service in 2015 (after the end of the protections). How would the new proposals affect me?	(a) If rules did not change £5,062.50pa plus £15,187.50 cash (b) Based on the revised proposals £4,995 pa plus £15,109 cash Note: - See answer to question 21.
I am a women aged 20 and reach 60 in 2045. I am likely to leave in 6 years time on £20,000 pa with 10 years service. How would it affect me if I draw my pension at 60?	(a) If rules did not change £2,500pa plus £7,500 cash (b) Based on the proposals from October 2006 £2,129.50 plus £7,046.50 cash Note: Despite only working 10 years the period from the date of leaving to the date of retirement counts towards the rule of 85 so most early leavers after the date of the change would lose out.
I am a woman aged 43. I will reach 60 in 2022 with 23 years service on £20,000 pa. How will it affect me if I go at 60?	(a) If rules did not change £5,347 pa plus £15,922 cash sum (b) Based on the employee proposals from October 2006 £4,547 pa plus £15,825 cash sum Note: Under the current rules if the member retired at 60 she would be 1.5 years short of the rule of 85 (age 61.5 plus service 23.5 years service = 85) therefore her pension would be reduced by 10% and her cash sum by 3.5%. Based on post October 2006 pension arising from the 15½ years after that date would be reduced by 27% and the cash sum by 11%.
How can I calculate the effect on me?	Hopefully the above examples will help give you some idea. Below are the current factors in the LGPS that will be used to reduce your post October 2006 service, if you plan to retire before 65. If you are not fully covered by the rule of 85 at present (e.g. if you have less than 25 years service at 60), then all your pension and cash sum would be reduced by the appropriate factor if you retired before 65 (see question 31). If you don’t qualify for the rule of 85 the reduction will be the same on both pre and post 2006 service

top

REDUCTION FACTORS IN THE LGPS

Using the factors which are currently in the LGPS, the reductions for retirement before age 65 would be as follows: -

Number of years before age 65	Percentage Reduction
	Retirement Pension		Lump sum
	Men	Women	Both Sexes
0	0	0	0
1	8	7	2
2	15	13	5
3	22	18	7
4	28	23	9
5	33	27	11
4	28	23	9
5	33	27	11
6	37	31	14
7	40	35	18
8	43	39	21
9	46	42	24
10	48	45	26

NB Where the number of years before age 65 is not an exact number (i.e. 4 years and 6 months) the necessary interpolations are made in the table. For 4 years 6 months, for example, the percentage reduction would be 30.5% for a man and 25% for a woman. The lump sum percentage reduction would be 10%.

This document has been prepared by Glyn Jenkins Head of Pensions UNISON and adapted for the Scottish position by the P&I team. Members should be able to receive more detailed information about their own benefits from their employers’ pension department.

20 January 2006

Questions and Answers

LOCAL GOVERNMENT PENSION SCHEME (LGPS)