Redundancy or efficiency

What employers need to do in the case of a redundancy or efficiency.

If you dismiss an active member due to redundancy, business efficiency, or whose employment is terminated by mutual consent on grounds of business efficiency (hereafter referred to as “redundancy”), who

  • is aged at least 55 and 
  • has at least two years in the LGPS, 

that member is entitled to, and must, take immediate payment of their unreduced pension relating to that employment.

Hidden cost of redundancy

There is likely to be a cost incurred by the employer for allowing early retirement. 

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

Process for redundancy or efficiency retirement

  • To establish the hidden cost associated with the redundancy, the employer should complete an HR request for pension estimates (docx format 71 KB) and send it Pension Services. There are notes on this form to help you fill it in.
  • A member cannot directly request a redundancy estimate, it must come from the employer.
  • On receipt of the form, Pension Services will calculate the hidden cost and inform the employer of the likely cost and the terms of the repayment
  • The employer will then make their decision. When redundancy for someone aged at least 55 is agreed, the employer should send Pension Services the Retirement Confirmation Form (docx format, 301 KB) 
  • This is the formal confirmation of the employer’s approval of early pension payment.
  • Once the member has left, the employer will submit the leaver details and CARE details on i-Connect before the 19th of the month following payroll.
  • Pension Services will calculate retirement benefits within 10 working days of having full information, and inform the member of their payment options
  • We will contact the employer about the payment of the retirement's hidden cost and repayment period soon after the retirement is finalised.

More information

Go to the 'Hidden cost’ and repayment page to find out more.