SECTION 3 VOLUNTARY EARLY RETIREMENT (VER)... 1

Contents SECTION 3 VOLUNTARY EARLY RETIREMENT (VER)... 1 7.1 OVERVIEW...1 Special notes for employers...1 Types of VER...2 Eligibility...3 Direction Bodies...4 Qualifying conditions for payment of VER benefits...4 Re-employment...5 7.2 NON-AGREED VER WITH ACTUARIALLY REDUCED (VER)...6 Special notes for employers...6 Guaranteed Minimum Pension (GMP) test...6 Who can apply...8 Dependant benefits...8 How benefits are reduced...8 Reduction example...9 7.3 AGREED VER WITH UNREDUCED (AVER)... 10 Special notes for employers... 10 Who can apply... 11 Employer costs for agreed VER... 12 Methods of payment for agreed VER employer costs... 13 Example of employer costs for agreed VER... 13 Billing procedures... 14 Re-employment following retirement... 15 Abatement... 15 Suspension... 15 Pensions Increase... 16 Calculation and Estimation VER Benefits... 16

SECTION 3 VOLUNTARY EARLY RETIREMENT (VER) 7.1 OVERVIEW 7.1.1 New voluntary early retirement arrangements for Scheme members were introduced on 06.03.95. This part of the guide explains how these arrangements fit in with existing early retirement schemes and advises NHS employers about the use, relevant criteria and cost of each arrangement. On 06.03.95 new VER arrangements were introduced. 7.1.2 It is important to note that the voluntary early retirement (VER) provisions do NOT replace the existing arrangements for the early retirement of staff on grounds of: VER does not replace redundancy or ill-health retirement. redundancy or in the interests of the efficiency of the service, (go to Section 5 of this part); or ill-health retirement (go to Section 4 of this part). 7.1.3 These arrangements must continue to be used where the relevant criteria are satisfied. Special notes for employers 7.1.4 NHS employers should: establish local arrangements for managing and authorising their own early retirement cases; [Section 3] 7-1

arrange for early retirement to be authorised by an appropriate senior manager in all cases where the employer is to meet the costs; Managers should authorise certain VER cases. follow the guidance at Section 8 of this part, on the re-employment of former NHS employees who have taken early retirement; Pensioners cannot rejoin the NHSPS after taking VER. ensure that all members retiring early are made aware of the policy on re-employment and the effect of re-employment on NHS pensions; Payment of pension may be affected by a return to work. continue to refer to HSG(93)22 for information on the arrangements for early retirement of consultants and associate specialists under Achieving a Balance. VER does not replace achieving a balance. Types of VER 7.1.5 Contributions to the NHS Pension Scheme do not cover the costs of paying retirement benefits before the Scheme's normal retirement age of 60. Two VER options are available depending on the arrangements for meeting these costs: Contributions do not cover the cost of paying benefits early. There are 2 types of VER. voluntary early retirement with actuarially reduced benefits (VER), commonly known as a nonagreed VER - the member's pension and lump sum are reduced by actuarial factors provided by the Government Actuary, (go to Appendix 3 of this part); or voluntary early retirement with unreduced benefits (AVER), commonly known as an Reduced benefits are paid on nonagreed VER. The employer is charged for agreed VER. [Section 3] 7-2

agreed VER - the costs may be met by the employer, in which case the benefits will not be reduced (go to para 7.3). Eligibility 7.1.6 Members of the NHS Pension Scheme between the VER is available between age 50 and 60. ages of 50 and 60 may volunteer to retire early if they satisfy the qualifying conditions set out in paragraph 7.1.12 of this section. 7.1.7 Special class members and mental health officers (MHO's) whose normal retirement age (NRA) is age 55 will be subject to the same VER adjustment Reductions will still apply when members of special classes retire before 55. as other members if they retire before age 55 with actuarially reduced benefits. 7.1.8 With voluntary early retirement there is no enhancement of benefits. The pension and lump Benefits are based on reckonable membership. sum retiring allowance is based on reckonable membership only. 7.1.9 Applications for actuarially reduced VER retirement after membership has ceased is not permitted. Applications cannot be made after membership ends. 7.1.10 A member who is on unpaid sick leave may apply for actuarially reduced VER providing they meet all other criteria. Application may be made during unpaid sick leave. [Section 3] 7-3

Direction Bodies 7.1.11 Members who work for direction bodies are now only able to apply for benefits under the non-agreed VER facility. For further information, (go to Part 12, Direction Employers). Direction Employers cannot pay for agreed VER. Qualifying conditions for payment of VER benefits 7.1.12 Members of the NHS Pension Scheme who take VER, may receive immediate payment of their benefits (pension and lump sum retiring allowance) if they: There are a number of conditions which need to be met. are aged 50 or over; and have at least 2 years' pensionable membership. Members who: have more than one NHS employment, pensionable or non-pensionable; and/or have other non-nhs employment(s) in which they are pensionable in the Scheme, will normally be required to retire from all employments. Member must: be 50 or over; and have at least 2 years membership; retire from all NHS employments of more than 16 hours. However, if the other employments do not exceed 16 hours a week, in total: they may continue on a non-pensionable basis, WITHOUT a break; and [Section 3] 7-4

the resultant VER benefits will be paid as though all employments had terminated on the last day of pensionable employment. Re-employment 7.1.13 No further membership of the Scheme is possible once retirement on VER grounds has taken place, (go to Section 8 of this part). No further membership of the Scheme is allowed. 7.1.14 Offers of re-employment, or payments for consultancy work, are not expected to be made to former Scheme members who have taken early retirement from the NHS at public expense, UNLESS the offer clearly represents good value for money in relation to alternatives. This must be decided on a case by case basis by NHS employers who are reminded that Chief Executives in the NHS, as Accountable Officers, have a responsibility to Parliament for the proper use of public funds. If, exceptionally, further employment in the NHS is offered, the timescale of the work and the appropriate salary level must be properly specified and consideration should always be given to flexible employment contracts, eg. on a fixed term, part-time, or consultancy basis. Employers must ensure that they are getting good value for money. If an employer has paid for VER they should not usually make an offer of further work. 7.1.15 For a full round up of Scheme re-employment issues, (go to Section 8 of this part). [Section 3] 7-5

7.2 NON-AGREED VER WITH ACTUARIALLY REDUCED (VER) Special notes for employers 7.2.1 This arrangement allows members of the NHS Pension Scheme to choose to retire early with an actuarial reduction to their benefits. The employer's approval is not required, although any notice period will need to be agreed in line with the contract of employment. Employers and members should agree the date of retirement. 7.2.2 Employers should try to ensure that volunteers are fully aware of the financial implications of their decision. In particular, the member should be advised: Employers have a responsibility to ensure that members understand the financial implications. not to make any definite retirement plans until it has been confirmed that the actuarially reduced pension will satisfy the GMP conditions set out in pargraphs 7.2.3 et seq. Retirement is subject to benefits being equal to or better than the GMP. that the actuarially reduced pension remains in payment during the pensioner's lifetime; Reductions to benefits are permanent. that the gross pension and lump sum are not restored at age 60. Guaranteed Minimum Pension (GMP) test 7.2.3 Where the early retirement costs are to be met by an actuarial reduction, the reduced pension must be at least equal to the Non-agreed VER is not allowed if the reduced pension is less than the GMP. [Section 3] 7-6

Statutory Standard (previously the Guaranteed Minimum Pension (GMP)), as required under Social Security legislation. 7.2.4 If the reduced pension is NOT at least equal to the Statutory Standard/GMP, retirement on nonagreed VER grounds is NOT permitted. Note It is essential that employers check with the that the reduced pension exceeds the Statutory Standard/GMP BEFORE an application to retire under the actuarially reduced/non-agreed VER provision is finalised. Employer must ask the to check the GMP before the retirement is finalised. 7.2.5 The only exception to this is the case of a married woman paying reduced NI contributions. In cases such as that, GMP details will not be required. It is, therefore, very important that boxes 32 and 33 (NI earnings) of form SD55 are completed with both 'E' and the relevant NI figures. A note should also be made in box 27 to the effect that the member is a married woman 'E' rate. For further advice on completing form SD55, (go to Part 11, Forms & Records). Married women paying E rate NI contributions are not subject to the GMP test. The form SD55 should clearly show that that E rate contributions are being paid. 7.2.6 It is important to note that the will not generally undertake the GMP test on an estimate, unless a genuine expression of interest to retire has been made or the employer specifically The will only check the GMP for an estimate when asked. [Section 3] 7-7

stipulates that they wish this action to be taken. 7.2.7 No re-test of the GMP will be done where retirement details are revised. Who can apply 7.2.8 Voluntary early retirement with actuarially reduced benefits is available to ALL Scheme members, including general medical and dental practitioners, direction body members AND GP Practice Staff (GPPS). All current Scheme members can apply for nonagreed VER. Dependant benefits 7.2.9 Long-term dependants' benefits for widows, widowers and children will not be actuarially reduced. Short-term benefits which are paid for the initial 3 months after a member's death (6 months if there is a dependent child) will be paid at the same rate as the member's pension. However, if the long term Widow(er) s Pension (WP) / Child Allowance (CA) is higher than the Initial Widow(er) s Pension (IWP), the long term amount of WP/CA will be payable from date of death. Any deficiency payment will be related to the actual pension paid. For further information on dependants benefits, (go to Section 9 of this part). Benefits for widows, widowers and children are not actuarially reduced. Any DG deficiency payment will be related to the reduced pension. How benefits are reduced 7.2.10 The table below shows the approximate proportion of benefits payable after actuarial reduction. [Section 3] 7-8

AGE PENSION LUMP SUM 59 94% 97% 58 89% 94% 57 84% 92% 56 80% 89% 55 75% 86% 54 72% 84% 53 68% 82% 52 65% 79% 51 62% 77% 50 60% 75% 7.2.11 A copy of the Government Actuary's table of factors, for exact calculation of the actuarial reduction, is at Appendix 3A. The full table of reductions is at Appendix 3A. 7.2.12 A member retiring under VER at age 50 can actually leave employment on the day before the anniversary of their 50th birthday. The reduction factor would be the one appropriate to age 50. Employment can end the day before 50 th birthday. Reduction example 7.2.13 The following is an example of actuarially reduced benefits, calculated by using the Government Actuary's table of factors. Age at date of retirement - 56 years Unreduced annual pension - 6,000 pa Unreduced lump sum - 18,000 Actuarially reduced pension - 4,776 pa ( 6,000 x 0.796) Actuarially reduced lump sum - 16,002 ( 18,000 x 0.889) Further examples are given at Appendix 3. [Section 3] 7-9

7.3 AGREED VER WITH UNREDUCED (AVER) Special notes for employers 7.3.1 This arrangement should not be confused with: Employers should refer to Section 5 if the retirement is on Compensation grounds. early retirement on compensation grounds (go to Section 5 of this part); or with volunteering for compensation (go to Section 5 of this part); and cannot be used when the criteria for the payment of early retirement benefits on grounds of redundancy are satisfied (go to Section 5 of this part). Agreed VER is not an alternative to redundancy. 7.3.2 VER with unreduced benefits enables NHS employers to agree to meet the costs of voluntary early retirement, in which case the member's pension benefits will not be reduced. This may be offered, for example: where individuals seek to retire early and this would clearly lead to an improvement in overall efficiency; or where employers choose to invite volunteers to consider early retirement in order to help solve management problems and improve overall efficiency. [Section 3] 7-10 Employers meet the cost of VER. Pension benefits are not reduced. There are a number of occasions when agreed VER may be offered: where the member wants to retire early and this would lead to efficiency savings; where to volunteer would help solve management problems and improve efficiency.

Note Employers are reminded that taking early retirement under these arrangements must remain a completely voluntary option. Remember! Staff must agree to VER. 7.3.3 The costs incurred by employers will need to be justified by resulting efficiency savings and improved overall performance. Each case should be authorised by an appropriate senior manager. Employers are reminded that Chief Executives in the NHS, as Accountable Officers, have a responsibility to Parliament for the proper use of public funds. The cost incurred by employers must be justified. Who can apply 7.3.4 VER with unreduced benefits is not available to: Watch out! Not all members can apply for agreed VER. general medical and dental practitioners, who are self-employed contractors; or GP Practice Staff (GPPS); or members employed by direction bodies (go to Part 12, Direction Employers). [Section 3] 7-11

Employer costs for agreed VER 7.3.5 The employer who agrees to meet the cost of VER will be responsible for the costs accrued from previous pensionable employments and from other terminating employments. Employer costs are set out in para 7.3.6 et seq, together with an example of how these costs are calculated. The employer who agrees to VER must meet the costs for all membership. 7.3.6 The costs to the employer are equivalent to the actuarial reduction of benefits which would otherwise apply. The costs equate to the actuarial reduction. 7.3.7 Employers who agree to meet the costs of voluntary early retirement must pay for: the pension up to age 60; pension increases up to age 60; the actuarial cost of paying the lump sum retiring allowance before age 60. 7.3.8 These costs to age 60 will also apply in the case of a member whose normal retirement age is 55. Remember costs are paid to 60 for all staff. 7.3.9 Employers are reminded that where the member volunteering to retire early has concurrent pensionable employment(s), the employer who agrees to meet the costs must also bear the costs relating to all other terminating employments. Employer costs will include all current employments. [Section 3] 7-12

Methods of payment for agreed VER employer costs 7.3.10 Employers who agree to meet the costs of voluntary early retirement must pay by one of two methods: by a single capitalised lump sum payable within one month of the date of retirement; or There are 2 payment methods: single payment. instalments. by spreading the capitalised cost over five years in equal annual instalments, plus interest. 7.3.11 The interest rate may be varied from time to time, on the advice of the Government Actuary. For the present, each annual instalment will be calculated as 24.1% of the capitalised cost. The first instalment is payable within one month of the date of retirement, with the remaining instalments due by 31 October in each of the four following financial years. Example of employer costs for agreed VER The current variable interest rate is 24.1%. The first yearly instalment is due within 1 month of retirement. 7.3.12 In order to calculate employer costs of voluntary early retirement, use Tables 1 and 2 at Appendix 3(B) & (C). Age at date of retirement - 56 years Annual pension - 6,000 pa Lump sum retiring allowance - 18,000 [Section 3] 7-13

Method 1 Payment by single lump sum. Capitalised pension cost - 21,666 (TABLE 1-6,000 x 3.611) Charge for early payment of Lump sum - 1,998 (TABLE 2-18,000 x 0.111) TOTAL - 23,664 Method 2 Payment by fixed annual instalments Cost of each annual instalment - 5,703.02 ( 23,664 x 0.241) TOTAL COST - 28,515.10 (5,703.02 X 5) Further examples are given at Appendix 3. Billing procedures 7.3.13 Employers should indicate, at Part 6.2 of form AW8, whether they wish to pay compensation costs by: To avoid delays, please tell us how you intend to pay. capitalised single lump sum; or capitalised annual instalments (including interest). 7.3.14 The Client Centre will issue an invoice to the Employing Authority at the time they authorise the VER benefit award. A copy of the invoice is immediately sent to the s Finance Group. An invoice will be issued when benefits are authorised. [Section 3] 7-14

Payment from the employer is due within one month of the s Finance Group receiving the invoice copy. If a response is not received within one month the will initiate follow up action. 7.3.15 Employers paying by instalments will only be billed at the outset for the first annual payment. Invoices for subsequent payments will be issued every October, starting from the financial year following the retirement date. For example, if the first invoice is dated May 1999, the invoice requesting the 2nd instalment will be raised in October 2000. Employers paying by instalments will receive an annual invoice each October. Note Employers are reminded that, where costs are being paid by 5 annual instalments and the member dies before capitalisation costs are fully paid, the outstanding amount must still be met in full. If the member dies, employer costs must still be paid. Re-employment following retirement Abatement 7.3.16 Abatement applies up to age 60 only. For further information, (go to Section 8 ofthis part). Abatement applies up to age 60 only. Suspension 7.3.17 Members who have taken voluntary early retirement with either reduced or unreduced benefits will have payment Payment of pension may be suspended on return to work within 1 month. [Section 3] 7-15

of their pensions suspended if they are re-employed in the NHS within one calendar month from the date of retirement. Re-employment amounting to 16 hours or less per week can be ignored. 7.3.18 For further information on the circumstances in which a pension may be suspended, (go to Section 8 of this part). Pensions Increase 7.3.19 Pensions Increase (PI) is not payable until age 55. When the pensioner reaches age 55 the PI that has accumulated since the pension began will become payable. For further information on PI, (go to Section 1 of this part). Advise members that PI is not payable until age 55. Calculation and Estimation VER Benefits 7.3.20 Examples of straightforward VER benefit calculations for information and for employers wishing to offer a local benefit estimation service, can be found at Appendix 3 to this part. For more information about estimating retirement benefits (go to Section 10 of this part). Examples are shown in Appendix 3. [Section 3] 7-16