The pension team will be happy to provide a projection of retirement benefits on request from the employer. Estimate requests can be submitted to us by e-mail to info@berkshirepensions.org.uk
Estimate requests can be submitted for reasons of:
- Redundancy
- Business Efficiency retirement
- Flexible Retirement (with and without waiving the actuarial reduction)
- Ill-Health (Tier 1, 2 or 3)
- Early Retirement between age 55 and Normal Pension Age
- Estimate to Normal Pension Age
- Late Retirement (beyond Normal Pension Age)
Please submit your request by completing the attached form EST3
If you are requesting an estimate for a former employee please use form EST4
We can accept this form via email at info@berkshirepensions.org.uk
We aim to return the estimate to you within 5 working days from receipt of your request.
Pension Strain Cost (Change from 1 January 2024)
Pension strain costs occur when there is a clear shortfall in the assumed level of funding needed to provide a particular entitlement to pension benefit. Strain costs most usually arise when an employer takes a decision to make a member redundant (or to retire them early for business efficiency reasons) and the member is aged between 55 and their Normal Retirement Age. In these circumstances the LGPS regulations dictate that the pension benefits paid to the member cannot have an early retirement reduction factor applied to the pension benefits and so the full value of the pension benefits calculated at the point of redundancy are paid immediately and without reduction. This places a strain on the Fund and the employer has to make a capital payment to the Fund to avoid the funding shortfall.
Pension strain costs can also arise in cases of flexible retirement and early retirement where an employer agrees to waive the percentage reductions. Pension strain costs must be paid by an employer at the point the member’s pension benefits come into payment as a one-off payment to the Fund. Further additional strain costs will arise if an employer uses its discretion to award additional pension to the member.
In cases of ill health retirement, a pension strain cost is calculated but on these occasions an employer is not normally required to make a one-off payment to the Fund. Instead, as part of the valuation process, the Fund actuary makes an assumption as to the likely number of ill health retirements and builds into the employer’s contribution rate an element to pay for those anticipated costs.
- SCAPE discount rate - On 30 March 2023 a written ministerial statement made by the Chief Secretary to the Treasury confirmed that the Superannuation Contributions Adjusted for Past Experience (SCAPE) discount rate had been reduced to a real rate of 1.7% per annum above CPI inflation, from the previous real rate of 2.4% per annum.
Although this change does not impact on employer contribution rates there has been an impact on the LGPS given the SCAPE rate is used by the Government Actuary Department (GAD) to set a variety of actuarial factors used by Fund administrators. One set of actuarial factors LGPS Funds were informed changed from a later date, 3 July 2023, are those percentages used to reduce a members pension benefits when they retire for reasons not described above. The new percentages used from 3 July 2023 to reduce a members pension benefits are more favourable to the member, although the members pension benefits will still be reduced to take account of the fact that the pension benefits will be paid earlier and for a longer period of time than would otherwise have been envisaged, the reductions will be less putting an increased strain on the Pension Fund.
The change to the SCAPE discount rate led the Fund to commission its actuary to review the factors it uses to calculate a pension strain cost, the first review since 1 April 1998. New factors were introduced from 1 January 2024 and now generate a higher pension strain cost than would otherwise have been generated for redundancy, business efficiency, employer consent and flexible retirement cases.
- Estimate Requests – The Fund cannot stress enough how important it is to request an estimate of the pension strain cost involved before making any decisions about any member you are considering redundancy, business efficiency, employer consent and flexible retirement on behalf of. You can send an estimate request to the Fund by completing form EST3.
If you are an employer who has recently made a request for an estimate with a last day of service on or after 1 January 2024 you may wish to consider making a further request to the Fund as soon as possible to understand the new pension strain cost.
- Invoicing - For all types of early retirement where there is a pension strain cost, an employer will be invoiced for the full cost of the early retirement at the same time as the Fund provides the member with their pension benefit payment options.