Early Retirement Costs (ERCs)
Where an employee leaves on the grounds of redundancy/business efficiency and is aged 55 and over, the member is entitled to immediate payment of their unreduced benefits.
As a result of these unreduced benefits being paid earlier than the normal pension age, an early retirement cost (ERC) is payable by the employer to cover the pension fund strain cost, see the LGPS Regulations 2013: http://lgpsregs.org/schemeregs/lgpsregs2013/timeline.php#r68.
Also, in the event of your organisation agreeing to waive any actuarial reduction in respect of a member's benefits following their voluntary resignation or your granting of flexible retirement, an ERC would again be payable by the employer.
If a member retires on the grounds of ill health there will also be an ERC payable by the your organisation, but this would not be payable immediately and is taken into account at the next triennial valuation (31/03/2022), or, if you are an employer with fewer than 1000 members these costs may be covered by the Fund's captive insurance - for further details on this please see our Funding Strategy Statement.
The calculation of an ERC is based on:
- The member's age
- Length of scheme membership
- Pay
- Length of time to their Normal Pensionable Age, and
- Factors produced by the Fund's actuary.
Before you process any redundancy/business efficiency retirements, grant flexible retirements, or waive any actuarial reductions for members, we advise that an estimate is run through the Employer Hub to establish any potential costs to the employer.
