What are factors?

As a member of the Fund you build up benefits which, when you retire, are paid as a pension. Your pension provides you with a monthly income for the rest of your life. These are built up on the basis of members taking all of their benefits as a pension at the Fund’s normal pension age (usually 60 or 65), but there are other options available. For example, you can choose to take your pension earlier or later, or you can exchange some of your pension for a cash lump sum. If you choose one of these other options, we use factors to adjust the amount of pension you receive to maintain the overall value of your benefits, but reflect the fact that you are taking them in a different way.

What types of factors are used?

1. Early retirement – if you take your pension early, usually early retirement factors are applied to reduce the starting rate of your pension to reflect the fact that your pension will be in payment for longer. Generally speaking, the earlier you retire the larger the reduction.
2. Late retirement - if you take your pension late, late retirement factors are applied to increase the starting rate of your pension to reflect the fact that your pension will be in payment for a shorter period. Generally speaking, the later you retire the larger the increase.
3. Taking a cash lump sum – if you take some of your benefits as a cash lump sum, factors need to be applied to calculate the amount of pension you get from the remaining benefits. These factors represent the amount of money needed to pay a pension of £1 a year over the rest of your lifetime.

These factors apply whether you are an active member (you still contribute to the Fund) or a deferred member (you have left the bank or opted out).

Some members have benefits with different normal pension ages, e.g. 60 and 65. If you are one of these members and choose to retire between these ages then part of your benefits will have a late retirement factor uplift and the other part will have an early retirement factor reduction.

How are factors applied?

When you retire: the pension you receive is likely to consist of different elements that increase at varying rates, especially if you worked for the bank for a long time. For example, one element of your pension may increase with inflation each year (subject to a cap) and another element may not increase at all. The value of £1 of pension, which increases with inflation, is higher than the value of £1 of pension which will never increase and this difference in value is taken into account when setting factors. Whether or not a pension increases each year, and by how much, also affects the reduction applied on early retirement. This is due to the pension being paid for longer and the increase which should be applied in late retirement. As a result, each element of your pension has different factors applied for commutation, early retirement and late retirement.

If you transfer your benefits out of the Fund: factors are also applied to the calculation of the transfer value (the lump sum amount you get in exchange for benefits you would otherwise receive if you stayed in the Fund).

Examples of how factors are applied

These are illustrations only; your own circumstances could differ.

Early retirement pension

Early retirement factors determine how much your benefits will be reduced by if you take them before your normal pension age (NPA). The factor is a multiplier applied to your estimated pension at NPA, by reference to the years and months you retire before NRA.

We have shown below an example for a member who has an NPA of 60, an estimated pension at NPA of £10,000 a year, all of which increases in payment each year at RPI up to a maximum of 5%, and the member wants to retire one year early.

Example

Member’s estimated pension if they retire at age 60	£10,000 a year
Early retirement factor if they retire one year early (at age 59)	0.90
Early retirement pension from age 59	£9,000 a year (£10,000 × 0.90)

The factor shown here is illustrative only.

Late retirement pension

Late retirement factors determine how much your benefits will be increased by if you take them after your normal pension page (NPA). The factor is a multiplier applied to your pension at NPA, based on the years and months you retire after NPA. Any missed pension increases your pension would have received had you retired at NPA will also be added.

We have shown below an example for a member who has an NPA of 60, a pension at NPA of £10,000 a year, all of which increases in payment each year at RPI up to a maximum of 5%, and the member wants to retire one year later.

Example

Member’s pension if they had retired at age 60	£10,000 a year
Late retirement factor for one year later (at age 61)	1.04
Missed one year pension increase	1.03
Late retirement pension from age 61	£10,712 a year (£10,000 × 1.04 × 1.03)

The factors shown here are illustrative only.

Taking a cash lump sum

Commutation factors determine how much pension needs to be exchanged to take that benefit as a cash lump sum.

We have shown below an example for a member whose pension before taking any cash lump sum is £10,000 a year, all of which increases in payment each year at RPI up to a maximum of 5%, and the member chooses to take a cash lump sum of £30,000.

Example

Member’s pension before taking any cash lump sum	£10,000 a year
Member’s chosen cash lump sum	£30,000
Commutation factor	18
Amount of pension exchanged for the chosen cash lump sum	£1,667 a year (£30,000 ÷ 18)
Remaining pension that the member receives	£8,333 a year (£10,000 - £1,667)

The factors shown here are illustrative only.

How often do the factors change, and why?

Since December 2024, the Fund has been updating the factors monthly. This means that when members receive a quotation, the factors reflect fair value, based on recent market conditions.

The factors are set after taking actuarial advice. They are linked to bond yields which means they tend to move in line with changes in the value of longer dated UK government bonds (Gilts or Index Linked Gilts). They also take into account changes in inflation and life expectancy assumptions.

Monthly factors ensure members obtain fair value for the option they choose and also protects the Fund from paying out either too much or too little compared to the cost of providing that option.

What does this mean for the figures in quotations or benefits projections?

Unless your quotation is stated to be protected, the figures in it are only an indication of the benefits payable to you on retirement and may change in future. This is because we do not know what the factors will be in future months.

Factors usually change monthly and may go up or down. You should not rely upon figures given in previous retirement quotations or projections as they are likely to change between the date of the quotation and the date when you actually take your pension.

If you have submitted a retirement application on the basis of a quotation that was not protected we will recalculate your pension based on the factors in force at the actual date of retirement.

What else affects your pension quotation?

The amount of your pension entitlement is not itself affected by changes in factors. However, the value of your pension may change for other reasons. For example, after you leave the bank, your deferred pension usually increases until retirement at a rate which is linked to the level of inflation (known as ‘revaluation’). If inflation is lower or higher than previously expected your actual pension entitlement at the point of retirement may be lower or higher compared to the projection run at an earlier date.

We also have to allow for other unknown variables. If you have AVCs or APeCs, these will fluctuate every day as the value of the investment funds your AVCs or APeCs are invested in changes, which will impact the pension values quoted. The value of your APeCs is not directly affected by the application of factors, however if your APeCs increase in value then the maximum cash lump sum you can take will increase and you would need to commute less pension for a given cash lump sum. If your APeCs fall in value, the maximum cash lump sum you can take will reduce and you may need to commute more pension to take the same amount of lump sum.