Retiring early from a public sector scheme

You can usually take a public sector pension before the scheme’s normal pension age, but it is reduced to reflect being paid for longer. The reformed schemes for the NHS, teachers, the Civil Service and local government link normal pension age to your State Pension age, which is 66 and rising to 67 between 2026 and 2028 for people born on or after 6 April 1960. The earlier you go, the bigger the cut, and it lasts for life.

The minimum age and normal pension age

Every scheme has a minimum age before which you cannot take a pension except on ill-health grounds. It is tied to the normal minimum pension age in tax law, which is set to rise, so check the current minimum with your scheme, especially if you plan to go in the next few years.

Normal pension age is when you can take your pension in full. In the reformed career average schemes (the NHS 2015 Scheme, the Teachers’ Pension Scheme career average section, Civil Service alpha and the LGPS) it is your State Pension age. Older service in a legacy final salary section, such as the NHS 1995 or 2008 section or Civil Service classic, usually has its own, lower, normal pension age. The McCloud remedy moved some later service back into those sections too.

Many long-serving members therefore have two or three pension ages. You can often take the legacy pension in full while the career average part would still be reduced, or take everything together and accept a reduction on the later part.

How the reduction works

An early retirement reduction is an actuarial adjustment. The scheme works out how many extra years it will be paying you and cuts the yearly pension so that, on average, the total paid out is about the same. Each scheme publishes factors set by the Government Actuary’s Department, and these are reviewed from time to time.

The cut is a sliding scale, steeper the further you are from normal pension age. A few years early might take a modest slice off, and ten years early takes a much larger share. The factors change, so use the scheme’s own calculator or ask for an estimate for the exact date you have in mind.

Any lump sum you take is reduced on the same principle. The pension you draw then rises each year with inflation, from the lower starting point.

Ways to reduce or avoid the cut

Each scheme has a way to pay now for a smaller reduction later. These cost money, so the scheme gives you a price before you commit.

Scheme	Option
NHS Pension Scheme (England and Wales)	Early Retirement Reduction Buy Out: you or your employer pay extra so you can retire up to a set number of years early without the reduction
Teachers’ Pension Scheme	Actuarially Adjusted Benefits: extra contributions to bring forward the age you can retire without a cut
Civil Service alpha	Effective Pension Age: pay extra so your alpha pension can be taken in full before State Pension age
LGPS	Additional pension contributions or AVCs to top up a reduced pension; no direct buy-out of the reduction

Buying added pension is another route in most schemes. It does not stop the reduction, but a bigger pension leaves more after the cut. Contributions get tax relief through your pay.

Redundancy and efficiency retirement

If you are made redundant, or retired on business efficiency grounds, at or above the scheme’s minimum age, the LGPS pays your pension straight away with no reduction. For council and school support staff this can be worth a great deal. It also costs the employer, which is one reason redundancy offers to older staff are scrutinised closely.

The NHS, teachers’ and Civil Service schemes have their own arrangements. In some cases the employer can pay to remove the reduction, and the Civil Service Compensation Scheme sets out its own options for people leaving through voluntary exit or redundancy. The redundancy rights guide covers your statutory entitlements alongside the pension rules.

Easing into retirement

You do not have to stop working completely to draw a pension.

In the NHS, partial retirement lets you take some or all of your pension while you reduce your pay or hours, and you can keep building pension on what you still earn. Teachers can take phased retirement, drawing part of their pension while they reduce their salary. The LGPS has flexible retirement, which your employer has to agree to: you reduce hours or grade and take some or all of your pension. Civil Service alpha has partial retirement on similar lines.

Each option has its own conditions on how much you must reduce your pay or hours by, and the early retirement reduction rules still apply to what you draw.

Retire and return is the other route: take your pension, leave, and come back. The schemes have rules on the length of break you need and, sometimes, on how much you can work. Check them before you agree any start date.

Before you decide

Get a written estimate from the scheme for your chosen date. Look at both the yearly pension and any lump sum, and at what a partner would receive if you died first. With more than one section, ask for figures for each.

Allow for the gap before your State Pension starts, and for tax on the pension when combined with any other income. MoneyHelper gives free, impartial guidance on retirement options, and a regulated financial adviser can give personal advice for a fee. If ill health is behind the decision, look at ill-health retirement first, because it can pay your pension without the early retirement cut.