Hidden costs or pension strain

As an employer, if you make early, unreduced payment of pension benefits, it will often result in a cost. These hidden costs usually happen in the following circumstances:

The member aged 55 or older has been in the scheme for 2 years (sometimes called the 'vesting period'). The employer terminates employment due to:

  • redundancy
  • business efficiency
  • mutual agreement on business efficient grounds

The employer uses their discretion to waive percentage reductions for one of the following reasons:

  • a member requests early release of pension
  • you ‘switch on’ the 85-year rule protection

A flexible retirement may incur hidden costs, depending on the individual's age and membership details. Read our flexible retirement page for further details.

Who pays the hidden cost?

As the employer, you pay the hidden cost. The cost represents:

  • the loss of investment return and contributions
  • the cost of paying the pension for longer than expected

How to identify the hidden cost

We recommend that you request an HR estimate when a member retires early under one of the circumstances listed above. The HR estimate will help you to determine the potential hidden cost before you authorise it. You will need to supply final pay and CARE pay.

Learn more about HR estimates below.

If you are running a larger project requiring more than 10 HR estimates, contact us in advance so we can plan the work.

How to pay the hidden cost

We will request payment from you once you have:

  • authorised the early payment of a pension or waived a percentage reduction
  • identified the hidden cost or pension strain

HR estimates

Only an employer can request an HR estimate.

Additional pension contributions

There could be an increase in the hidden cost if the member has a transfer pending or is paying any:

  • additional pension contributions
  • additional regular contributions
  • added years
  • additional voluntary contributions

What we include in an HR estimate

An HR estimate includes only the hidden costs payable by you, the employer.

We will include details of the member's benefits if the member has completed the authorisation at the end of the form.