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Redundancy and redeployment - Pensions clinic



What do I need to know about redundancy, pension access, and redeployment?
Do I get my "full pension"?
I am over 55 years old and being made redundant.  I know that I can access my pension early but have also heard that I may qualify for a pension enhancement.
Do payments in lieu of notice count towards my pension?
How are the benefits paid and when?
If a LGPS member aged 55+ is being made redundant from part of their post i.e. taking a reduction in hours, does this trigger early release of their pension?
If I take my pension early, can I return to Local Government work?
I have been offered 'flexible retirement' as an alternative.  What is the difference?
What if I am made redundant and I am under 55?
Do I pay any tax on my redundancy payment?
I am facing a cut in my whole time pensionable pay.  What do I need to know?




What do I need to know about redundancy, pension access, and redeployment?
If you are facing redundancy and there is no offer of any new post, and you are over age 55 (and have at least 2 years total membership in the scheme or have transferred other pension rights into the Leicestershire County Council Pension Scheme) when you are made redundant, you would receive your pension and a redundancy payment.  However if you were not age 55, the redundancy situation would not trigger the release of the pension benefits.
If you are re-deployed and, following any trial period in the new post, there is no longer a redundancy situation, and there is no entitlement to early pension release.


Do I get my "full pension"?
This is a question that is often asked and it depends on what you mean by 'full pension'.There are two things to consider, in circumstances such as redundancy it is likely that members are retiring earlier than they probably expected to, in which case then no, they clearly wouldn't have built up as much service as they would have done had they retired later. The pension will only be based on the service that they have built up, nothing will be added to compensate.
The second thing to consider is where members do choose to retire early (not on redundancy grounds) then there is a strong possibility that those pension benefits would be reduced, because they are retiring earlier than expected and consequently receiving their pension for longer. However, if a pension is paid early because of redundancy then the pensions are not reduced in the same way.
So in summary, you won't get the pension you would have received if you had worked longer, but your pension that you do get won't be penalised for you receiving your pension early.


I am over 55 years old and being made redundant.  I know that I can access my pension early but have also heard that I may qualify for a pension enhancement.
These provisions are contained within the LGPS rules, however they are discretionary.  Employers within the Leicestershire Fund do not grant enhancements to pension.


Do payments in lieu of notice count towards my pension?
No.  This payment does not attract pension contributions, and so this period does not count towards your pension benefits, and your date of leaving your actual employment is your leave date, not the notional lieu date.


How are the benefits paid and when?
Every effort will be made to make payment of your benefits as soon as possible around or following your final day of employment.  However some employees with variable payments might find a slight delay while your final pay figures are being clarified.
The monthly pension is paid on the last working day of each month, and the pension lump sum is paid as a single payment as close to the retirement date as is reasonably possible.  The Pensions Team at County Hall will contact you with details of your retirement benefits and will quote the amounts payable. It is at this point that you will be asked if you wish to exchange any of your annual pension for tax free lump sum.  Also included in this correspondence will be a form for you to complete in order to provide us with the account details into which you would like these amounts to be paid.


If a LGPS member aged 55+ is being made redundant from part of their post i.e. taking a reduction in hours, does this trigger early release of their pension?
The reduction of hours in this scenario does not trigger early release of pension in the same way as full redundancy.


If I take my pension early, can I return to Local Government work?
There would be no reduction to the pension being received as a result of the redundancy package should a member return to Local Government employment in the future.  However should this be an immediate change of job, you will need to let your employer know the details, as you might not be entitled to the redundancy package (including the early pension release) should your Local Government employment be deemed to be continuous.


I have been offered 'flexible retirement' as an alternative.  What is the difference?
Under the pension scheme rules it is now possible, from age 55, for your Employer to agree to your pension benefits being released without completely leaving employment.  While flexible retirement remains at the employer’s discretion, this is now a common alternative to redundancy, and can be utilised by Employers when re-organising teams and departments.
This works well because flexible retirement can only be considered in situations where a pension scheme member has either reduced their working hours or reduced their grade.  
The main difference is that there is no guarantee that your pension benefits will be paid without reductions or penalties, unlike the redundancy benefits package.  However that is not to say that flexible retirement is not an attractive proposal for many, as it will release the pension much earlier than you might otherwise have expected, giving you access to a tax free lump sum should you elect for it.  And you can carry on working and contribute to the Local Government Pension Scheme should you choose to.
It is therefore extremely important that you find out what the potential benefits are before reaching a decision on accepting flexible retirement.  Once you take a reduced pension, it will remain reduced for the rest of your life, even when you finish work and retire fully.
In all cases, your HR team will contact the Pension Section, and arrange for a forecast to be sent through to you.  They will do this by completing the flexible retirement form FR1 and sending it through to us on your behalf.


What if I am made redundant and I am UNDER 55?
If you are under 55 and you have at least 2 years pension membership, then the pension benefits will be deferred/frozen in the pension fund. As long as your redundancy date is after 1st April 2014, you will be able to draw on the pension at any time between age 55 and age 75, although you will have your own individual ‘Normal Pension Age’.
Your Normal Pension Age is simply the age when you can retire and take the pension you have built up in full– for any pension built up from 1 April 2014 your Normal Pension Age is the same as your State Pension Age (but with a minimum of age 65). If you choose to take your pension before your Normal Pension Age it will normally be reduced, as it’s being paid earlier. If you take it later than your Normal Pension Age it’s increased because it’s being paid later.
The amount of any reduction or increase will be based on how many years earlier or later than your Normal Pension Age you draw your benefits.
If you are not sure of your state pension age, you can check using this state pension age calculator from the website of the Pension Service:
http://pensions-service.direct.gov.uk/en/state-pension-age-calculator/home.asp
The Pension Section at County Hall will calculate the value of your pension for you, and send you a statement of what it is worth.


Do I pay any tax on my redundancy payment?
If your redundancy payment is less than £30,000.00, then no.  However if you receive a payment over £30,000.00, then the excess amount will be taxed at the appropriate tax rate. Payments ‘in lieu of notice’ are also included in this calculation.


I am facing a cut in my whole time pensionable pay.  What do I need to know?
Only for members with membership of the LGPS prior to 1st April 2014:
Whilst the method for working out your pension benefits that you build up after 1st April is such that the pension will be based on a proportion of the pensionable pay that you receive each year, there are protections in place that are there to protect benefits built up before this date.  That is to say, the old rules, regarding the final salary arrangement will still be applied to the pension that you have built up before April 2014.  If you have suffered a reduction in grade, it is possible that a previous year's pay can still be used to calculate this part of your pension.
Under normal circumstances, a member’s pre April 2014 pension benefits are calculated using the whole time equivalent level of their final 12 months pensionable pay.  In the case of either of the 2 preceding years (each ending with the anniversary of the date of leaving), being higher, the best of the last 3 years will be used to calculate your pension entitlement.
However, the Regulations allow for an earlier pay period to be chosen, when members who have taken enforced decreases in the pay or payments specified in your contract of employment, or the member goes onto a lower grade or with less responsibility.  The employer and employee need take no action at the time the pay alters, and an assessment is made by the Pension Section at the point of leaving/retirement.
What this means is that when you leave/retire, we can select an older (higher) pay to use in the calculations of your pre 2014 benefits if that is most beneficial to you and the Regulations allow.
The scheme has a limited period of cover, that being 10 years back from the date of leaving.  That is to say that the employment with the reduced pensionable pay has to commence within the final 10 years of working.  Also, this Regulation cannot be used if the reduction in pay follows what is just a temporary pay increase.
The calculation is made by dividing by three your total annual pensionable pay in any three consecutive years of your choice, ending with 31st March, within the period of thirteen years ending with your last day as an active member
However if the drop is not covered by one of the above reasons, or is substantial, or maybe you are outside of 10 years from leaving/retiring, you can consider alternatives ways of protecting the pension accrued so far.  This would be done by splitting your pension in two, keeping the pension before the drop in pay separate from that built up afterwards.  However there are issues which you must fully consider before taking this step.
Firstly, once the pension is separated, that decision cannot be reversed.
Also, should you be made redundant or retired early in the future, and your benefits are brought into payment early, that decree would only apply to the second pension.  The separate first pension would always remain frozen until retirement age.  
Should ill health retirement become an issue, a separate application would have to be made for the early payment of your deferred benefits.
Detailed information can be gained by contacting the Pensions Team at pensions@leics.gov.uk.  Full details on how to contact us by other means, including address and telephone numbers can be found on our Contact page.





Page Last Updated: 18 March 2014