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Early retirement within local authorities briefing 68




"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 personnel.


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.

Legislative changes

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 practices.

'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 extra costs.

Voluntary Retirement

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.

Ill Health

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.

Accounting Practices

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 of 85'.

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 3:1.

This range is surprising given that all ill-health retirals now have to be based on independent occupational health opinions.

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 department budget

  • 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.


Further Information:

The Audit Scotland report can be found at:



Contacts list:

Kenneth McLaren - K.MacLaren@unison.co.uk

Dave Watson - d.watson@unison.co.uk

@ The P&I Team
14 West Campbell St
Glasgow G26RX
Tel 0845 355 0845
Fax 0141-307 2572

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Further Information

The Audit Scotland report can be found at:


Contacts list:

Kenneth McLaren -

Dave Watson -

@ The P&I Team
14 West Campbell St
Glasgow G26RX
Tel 0845 355 0845
Fax 0141-307 2572