Redundancy overview for employers

Revised redundancy conditions for employees

From 1 April 2015, new redundancy provisions were introduced as part of the 2015 pay settlement for staff. This is covered by Agenda for Change terms and conditions

When an employee is made redundant and chooses to claim pension benefits, an employer’s responsibility to pay capitalisation costs is limited so the cost cannot exceed an employee’s redundancy payment.

A lower limit of £23,000 and an upper limit of £80,000 has been set for the whole time equivalent salary used to calculate an employee’s redundancy payment that is payable by the employer.

This applies in both the 1995/2008 Scheme and the 2015 Scheme, where a formal redundancy consultation began on or after 1 April 2015. Section 16 of the Agenda for Change handbook has more guidance about redundancy payments for members subject to Agenda for Change terms and condition.

If there is doubt about the level of redundancy payment a member is entitled to, you may decide to take your own legal advice as we are unable to assist in such matters.

The revised redundancy provisions impact members who are employed in England and subject to Agenda for Change terms and conditions.

Therefore, they do not apply to:

staff employed in NHS Wales
hospital doctors, dentists and very senior managers who are not subject to Agenda for Change or equivalent terms and conditions

Section 16.3 of the Agenda for Change handbook highlights that to qualify for a redundancy payment, the member of staff must be an employee working under a contract of employment for an NHS employer. An NHS employer is any of the organisations listed in Annex A of the handbook and any predecessor or successor body.

Options available to members

A member may be retired early in the interests of efficiency of the service (IOE). Unlike redundancy, this is where a member is no longer capable of meeting the requirements of their role either because:

of new or expanded duties
of a decline in their ability for perform their duties (but fall short of the criteria for ill-health retirements)

In either case, their pension benefits may be paid immediately but the member must have:

at least 2 years qualifying membership
2 years continuity of employment
reached their minimum pension age
not unreasonably refused to seek alternative employment and to accept an offer of such employment

Members who are made redundant for reasons other than IOE and meet the qualifying criteria can choose to:

take their redundancy payment and have their pension benefits paid unreduced at normal pension age
take their redundancy payment and take their pension benefits early with a reduction (early retirement)
take their pension benefits early without a reduction using the redundancy payment to meet the capitalised cost
take the redundancy payment and leave their pension benefits to be claimed later

For members made redundant from NHS employment in England who choose to take their pension immediately without reduction, the employer, the member, or a combination of both will meet the cost incurred of paying the unreduced pension, known as the capitalisation cost. This depends on their profession and terms and conditions of the contract.

The redundancy payment is used to meet capitalisation costs and any further cost met by the employer.

If the members are:

staff employed in NHS Wales
hospital doctors and dentists
very senior managers who are not subject to Agenda for Change or equivalent terms and conditions.

Members who have deferred 1995 Section and 2015 Scheme benefits may claim the 1995 Section benefits due to either redundancy or IOE from age 50 if they had membership between 31 March 2000 and 5 April 2006. Should a member then subsequently be re-employed, members will then be able to build up further pension benefits in the 2015 Scheme. If a member is in receipt of some or all of their pension benefits through flexible retirement, this may affect the redundancy payment from the employer depending on terms and conditions of employment.

Members with both 2008 Section and 2015 Scheme benefits may claim their pension early due to redundancy or IOE from both the 2015 Scheme and those from earlier membership. However, they must have reached the minimum pension age of 55.

Different employers and redundancy

Redundancy is primarily an employment event so you must consider a few things before speaking with us. We cannot comment specifically on employment events and can only confirm whether the member is eligible to access their pension under the redundancy provisions of the NHS Pension Scheme.

The following do not have access to redundancy pension benefits through the NHS Pension Scheme.

These are classic:

alternative provider medical services
personal medical services
general medical services
Out of Hours employees

However, you may wish to consider any statutory obligations as an employer that you may have in respect of redundancy events.

NHS trusts and independent providers normally have access to the redundancy pension provisions of the NHS Pension Scheme. This is providing the member’s contract of employment includes redundancy provisions and will also determine who would be responsible for meeting any capitalisation costs.

Direction bodies and local authorities can have different types of access to the NHS Pension Scheme. In these circumstances we would advise they seek their own legal advice first with regards to their responsibility to meet the redundancy provisions of a member’s contract of employment. We are unable to advise and can only give details of the member’s pension and the capitalised cost, if they meet the eligibility.

Capitalisation costs for direction bodies may be payable by you, the member or in some circumstances the NHS Business Services Authority. This would need to be referred to your own legal advisors and consideration made against the NHS Pensions Regulation.

Where the member’s terms and conditions provide, the redundancy payment must be used to meet any associated capitalised cost.

Interests of Efficiency (IOE)

If a member is retiring in the interests of the efficiency of the service, their benefits will be paid without reduction, and you will meet the costs of paying the pension early.

Members whose employment is terminated in the interests of efficiency of the service are not eligible for a redundancy payment from you. If the member meets the qualifying criteria they are entitled to immediate payment of unreduced pension benefits. In all cases the full capitalised cost must be met by you. There is no option for the member to make an additional contribution towards the capitalised cost.

If the reason for claiming their pension is interests of efficiency, you must pay the capitalised cost within one month from the date on which the member’s pension benefits become payable.

When submitting retirement benefits claim form (AW8) you must submit the supplementary checklist. You must complete this and email polia3@nhsbsa.nhs.uk after submitting the AW8.

Redundancy estimates

When requesting an estimate, you need to give us information to determine the pension benefit options available to the member. Use our Redundancy calculator (Excel: 290KB) to help with your calculations.

We are reviewing our processes for providing redundancy estimates, as there may be an increase in the number of requests we’ll receive over the coming months, and we want to streamline the process for you.

Over 10 members

If there are more than 10 members in a redundancy exercise, contact our Stakeholder Engagement Team at stakeholderengagement@nhsbsa.nhs.uk so we can start the process as soon as possible.

We will ask for essential information to support your request and provide a spreadsheet for you to supply your members details. Once you return these our Estimates Team will begin to process your request.

We will prioritise estimates on a case-by-case basis, considering your needs and the volume of incoming requests.

Under 10 members

For under 10 members, use the relevant AW295 estimate request form, which can be found on the Employer forms page.

If the working pattern of the member is an exclusion from the calculator, you can request an estimate from us by completing and submitting the AW295 form either through Pensions Online or by forwarding a scanned copy to nhsbsa.pensionsemployers@nhsbsa.nhs.uk .

Our estimate will show:

the unreduced pension and pension commencement lump sum, including the amounts after commutation (£1 to £12)
the capitalised cost of paying the unreduced benefits early
the pension and pension commencement lump sum reduced for early payment, including the amounts after commutation (£1 to £12)
where there is a shortfall between the redundancy payment, the capitalised cost and the reduced pension and pension commencement lump sum after the redundancy payment has been used

The estimate will be forwarded directly to the employer requesting the information and there is no charge applicable for redundancy estimates.

Submitting an award application

If a member wants to claim their pension because of redundancy, they need to complete the retirement benefits claim form (AW8) and you must close the record before submitting this through Pensions Online, on the grounds of redundancy (exit code 03) or forward a paper copy of the form to us if Pensions Online is not available.

When you submit the AW8, make sure you also submit the Redundancy supplementary information checklist (Word: 139KB) to us.

Complete the Retirement on grounds of interests of efficiency checklist (PDF: 299KB) if the reason for retirement on the AW8 is 'Early Retirement (IOE)'.

Capitalised costs

Capitalised costs are based on the difference between an unreduced pension and a pension reduced for early payment plus the cost of paying a lump sum early. These two amounts are multiplied by the factors provided by the Government Actuary’s Department (GAD). These factors are available on our retirement page.

If the capitalisation cost is more than the redundancy payment, the member must cover any remaining cost after using the employee redundancy payment. This is if they are subject to Agenda for Change terms and conditions or equivalent. The member cannot use any of their pension benefits to pay the capitalised cost shortfall.

The member must commit the whole of the redundancy payment and can then choose to:

have some of their benefits actuarially reduced to cover the shortfall
pay an additional contribution to meet all of the remaining costs
pay a lesser additional contribution to limit the actuarial reduction

The member can choose to keep the full redundancy payment and receive either:

immediate payment of benefits with full actuarial reduction
unreduced deferred benefits paid from their normal pension age

If the capitalisation cost is less than the redundancy payment, the member will receive the remainder of the redundancy payment after the full costs have been met.

Where members have pension entitlement in both the 1995/2008 Scheme and 2015 Scheme, the capitalised cost is determined as the sum of the costs calculated separately for each Scheme.

The redundancy payment must be used to first secure unreduced benefits from the 1995/2008 Scheme and any residue is then set against the capitalised cost of the 2015 Scheme. If the member has an option to pay an additional contribution, the payment should be used first to secure lower (or no) reduction in benefits from the 1995/2008 Scheme before being allocated to secure a lower or no reduction in benefits from the 2015 Scheme. Further consideration should be given that:

members can select redundancy pension benefits for the 1995/2008 Scheme and defer their 2015 Scheme. The member can make a claim for their 2015 Scheme pension later
members can select redundancy pension benefits for the 1995/2008 Scheme and chose to take early retirement pension from the 2015 Scheme. They will keep any residue severance payment
in general, a member can make a separate selection providing they do not claim their 2015 Scheme on redundancy. If they do claim 2015 Scheme redundancy pension benefits, then both legacy and 2015 Scheme must be paid as redundancy. The redundancy payment is set against legacy benefits first before any residue is applied to the 2015 Scheme.

Invoicing for capitalised costs

Where the member’s redundancy payment meets the capitalised cost or the member has not made an additional contribution, you must make payment to us within one month from the date on which the member’s pension benefits become payable.

If there is a shortfall in the payment and the member chooses to make an additional contribution, they must pay the additional amount to you. An invoice will be sent to you and payment must be made to us no later than one month before the member’s pension becomes payable.

Make sure that invoices are paid as soon as possible to avoid any delay in the processing and payment of a member’s pension benefits.

Members who have more than one employment may decide to retire from all their employments and claim their pension benefits. In these circumstances, the employer that is making the member redundant is responsible for meeting the cost of paying pension benefits early.

Substitute or revised awards

Increases in the capitalised cost

There can be a few results when the revision increases pension benefits.

You must recover any residue redundancy payment that may have been given to the member to meet the revised capitalised cost. If the member chooses to make or increase their additional contribution, they must pay this to you.

The redundancy payment continues to meet the revised capitalised cost. A new invoice will be raised by us for payment of the extra amount and sent to the you.

The redundancy payment no longer meeting the revised capitalised cost. If the member’s redundancy payment is subject to Agenda for Change terms and conditions, you must discuss with the member whether they would like to make an additional contribution or receive the extra amount of pension benefits with a reduction for early payment. This applies to England only. Welsh Agenda for Change are exempt and fall into all other circumstances. In all other circumstances the employer will meet the additional amount owed.

The member has made an additional contribution before, but the revision increases the difference between the capitalised cost and the redundancy payment. You must ask the member whether they would like to:

pay a further additional contribution to cover the cost of the increase in pension benefits now due
make no further contribution and have the additional benefits reduced for early payment

The revision of the additional contribution will be limited to the extra payment payable.

Decreases in the capitalised cost

If the revision decreases the pension benefits, then:

the employer must pass any excess monies returned if the cost is met by the severance payment and there is residue when compared to the original redundancy payment
the revised capitalised cost continues to be met by the redundancy payment
any excess charge will be noted as a credit on the employer’s record, and the employer can then request a refund of the credit amount. This can be paid either as a bank transfer, or to be used as credit against another outstanding invoice. However, this cannot be used to offset employer contributions.

If a member has made additional pension contributions, then deemed to be overpaid as a result of the redundancy calculation revision, we will need a credit note to be able to adjust the charges to the employer.
If a refund is due to the member in respect of the additional contributions, the employer can add in a minus adjustment to their contribution submission via MCP/RFT1/GP1. But they must ensure that they are added to the months where the contributions were first paid and using the correct contribution type (Add Pen). If the employer use POL and the additional pension was paid over in more than one month then refund forms would need to be completed instead. You can have copies provided by contacting the NHS Pensions Finance Team.

Members who increase their pension benefits

If a member is:

buying added years or
buying additional pension by instalments

they cannot have their payments back if they are forced to leave NHS employment early. Members will be credited with the extra benefits that they have already paid for but if they choose to claim their pension, the benefits they get from the additional contributions will be reduced. This is because benefits are being paid before the expected retirement date. The reduction for early payment also applies to those members who purchased added years or additional pension by a single lump sum.

Forms you may need

Complete the Concurrent pensionable employment (AW343) (PDF: 206KB) where the member is both:

leaving on grounds of compulsory redundancy
has concurrent pensionable employment, including Practitioner membership, in the NHS

Contact details

You can contact us by calling:

Member helpline: 0300 330 1346

Employer helpline: 0300 330 1353

Opening times: 08:00 to 18:00 – Monday to Friday

Postal address:

NHS Pensions

PO Box 683, Unit 5
Newcastle Upon Tyne
NE5 9EE

Redundancy overview