An unreduced pension is payable immediately on leaving employment if the member satisfies the ‘vesting period’ and is aged at least 55, and the employer terminates employment due to:

• redundancy
• business efficiency or
• mutual agreement on business efficient grounds.

Early unreduced payment of pension benefits could result in a shortfall in the pension funding. This shortfall is also known as the hidden cost or pension strain. The employer must pay Oxfordshire Pension Fund the value of the hidden cost. We recommend an employer requests an estimate of the cost of this early retirement.

Employer costs may also be incurred by using the discretion to waive percentage reductions following a member’s request for early release of pension or by ‘switching on’ the 85-year rule protection. If you have questions about the effects of those protections and your costs, please contact Pension Services.

A flexible retirement may also incur hidden costs – depending on the individual’s age and membership details. There are more details about flexible retirement.

After the employer has authorised the early payment of a pension or waived a percentage reduction, and a hidden cost or pension strain is identified, Pension Services will set up the recovery for the cost. See the section below ‘Hidden Costs and Repayment Periods’.

Requesting an estimate

To have a better idea of your potential ‘hidden cost’, request an estimate.

Find the forms for HR estimates on the forms page.

Send personal information securely to Pension Services. We will reply within 10 working days.

Please get in touch in advance to timetable the work for any bulk estimate or group projects.

Early retirement on redundancy, for example, must be authorised by the employer and a member cannot directly request a personal redundancy estimate.

The HR estimate form includes notes to help you, and there is more information about the terms on these webpages.

​Please note that if the member is paying any additional pension contributions, additional regular contributions, added years, Prudential Additional Voluntary Contributions, or has a transfer pending, there could be an increase to the hidden cost.

An estimate of hidden costs will not include the member’s personal benefit details. We will only include details of the member's benefits to employers if the member has completed the authorisation at the end of the form. If the member has given their authorisation, the employer will receive a copy of the estimated benefit statement with the details of the hidden cost.

To complete this form employers must supply Final pay and CARE Pay.

Final pay

Final pay is used for membership built up until 31 March 2014, but remember, the ‘final pay period’ is not frozen at 31 March 2014, it will keep pace with the member while he/she continues in LGPS.

Looking at the last 365 days (that is starting from the last day of service you give on the estimate) list the details of the rates and effective dates of any change in ‘whole-time equivalent pay’ over the year ending with that last day of service. This means for a part-time employee the rate of pay for someone doing the members job on full-time hours. Include any ‘pensionable pay’ values which are relevant to that period. This means if a person had a pensionable honorarium in the last year covering a period outside of the last 365 days, then you must only show the portion relevant to those last 365 days. ‘Final Pay’ here is as defined in the 2007 regulations and could be the best one (keeping the anniversary of the estimated last day of service) of the last three years, in these cases you may need to provide additional details. Sometimes the  ‘final pay period’ will be extended when Regulation 10 applies, the member will be making that choice following a reduction in pay in the previous 10 years. Ask Pension Services for more details if this situation might apply.

CARE pay

This information is the member’s actual pensionable pay under the LGPS 2014 rules and used to assess the member’s pension in the career average revalued earnings scheme.  For an estimate of the employer’s pension costs, the better the pay information, the more realistic the estimate can be.  We do collect CARE pay information from employers monthly: you could supply the pensionable pay you expect to pay from last MARS submission to the expected last day of service.   You could supply the monthly rate of the pensionable pay or the annual rate.  Although do tell us what period the figures are representing.

Remember the 2014 scheme definitions of pensionable pay – includes supplements and non-contractual overtime.

If the member has been away from work, or on reduced pay due to ill health or paid child-related leave the figure you need to show under CARE Pay may need to include  ‘assumed pensionable pay’.

Assumed pensionable pay

This is the average of a member’s actual pay for the three months period before the break adding in any expected annual lump sum payment if this is part of your policy.  Assumed pensionable pay is used in times to ensure a member does not suffer a reduction to their pension when their pay is reduced.

If you do not include assumed pensionable pay when this notional figure is due, the estimate is likely to be lower.  Pension Services prepare estimates based on the average of the previous three months CARE returns from the MARS returns, taken to an annual average. In the event the actual final figures for the member are higher, the actual hidden cost will be charged, not the estimated figure. You are strongly advised to complete the CARE pay, and not rely on default values which may not correctly reflect the pension or the hidden costs.

Please refer to the HR and Payroll guides on www.lgpsregs.org for more details on these terms or contact Pension Services.

Hidden costs and repayment periods

Information about the hidden costs to bring a pension into early payment.

The hidden cost (sometimes known as the capital cost or the pension strain) is the upfront cost the employer has to pay after agreeing to bring a member’s pension into payment early. A hidden cost charge may also be levied following an employer’s agreement to waive a reduction the member would have had to suffer in requesting an early payment of their pension.

The value of the ‘hidden cost’ is paid by the employer representing the loss of investment return and contributions as well as the cost of paying the pension for more years than the calculation of the employer contribution. The value is not accurate to the penny assessment but payable by the employer following the early retirement decision.

The invoice for the 'hidden cost' is issued and due for the full amount, by the Pension Investment Team.