Change to strain factors used in early retirement calculations
On the advice of our actuary, we have reviewed the factors currently used in the calculation of early retirement strain costs. The factors were last updated as part of the introduction of the £95k Exit Cap for public sector employers in 2020 (now since revoked). Before this, the factors were reviewed after the 2016 actuarial valuation of the fund, with new factors being introduced in 2017.
The actuary’s review has confirmed that strain costs have increased and because of this, has recommended an increase to the factors. The impact of the changes will increase employer upfront contributions in for strains by around 5% on average. The fund plans to update the factors for calculations affecting retirements from 1 September 2021. Although upfront strain contributions will increase, the higher amount reflects more closely the underlying funding cost of an individual retirement – giving employers greater transparency for costs and workforce planning, and reducing the chances of additional contributions needed for early retirements at a later date.
We will keep the situation under review over 2021, in particular given the potential for a new exit cap for public sector employers to be introduced, which itself will trigger a review of the factors/approach being applied at that time. Otherwise, the factors will be reviewed again after the 2022 actuarial valuation.