What happens to a final salary pension if you leave or are made redundant?

Final salary pension redundancy rules: what you built up stays yours as a deferred pension, and only some schemes pay it early and in full.

Being made redundant does not end a defined benefit pension, and it does not by itself switch it on. What happens next depends on your age, your years of membership and the terms of your scheme. Pension Wise, the free government-backed guidance service from MoneyHelper, is for defined contribution schemes, so for a final salary pension the scheme itself and MoneyHelper are the free places to start. Anyone hoping to talk through their own scheme and redundancy terms, and how those sit with other money, can outline both in the form on this page, redundancy letter to hand, and an FCA-authorised adviser telephones back at no cost.

What redundancy does to the pension you have already built up

Leaving stops new service building up. What you have already earned stays in the scheme as a deferred pension, fixed by your service up to your last day, and MoneyHelper says it usually receives a yearly increase until you claim it. The detail, including what the yearly statement shows, is in deferred final salary pensions; the basics are in what a final salary pension is.

Short service is the exception. With under 2 years in a defined benefit scheme, GOV.UK says a refund of what you contributed may be possible, depending on the scheme's type and rules. In the Local Government Pension Scheme (LGPS) in England and Wales, a leaver without the two-year qualifying period generally has three options: a refund, a transfer of its cash value for someone who was a member for more than three months, or putting the decision off. Ask your scheme to confirm in writing which side of the line you are on, and use the lost pension guide if you cannot say where all your pensions are.

Can a deferred pension be paid early?

Sometimes, and not because of the redundancy alone. GOV.UK’s early retirement guidance says that when you can take money depends on the scheme’s rules, “but it’s usually after you’re 55”. That 55 is the normal minimum pension age, which HMRC says goes up to 57 on 6 April 2028, ill-health retirement and protected pension ages being the exceptions; both, and the tax on money paid sooner, are covered in taking a pension at 55 and the early withdrawal penalty guide.

Whether a former employee's pension can start before the scheme's normal pension age, and how much smaller it would be, is set scheme by scheme. Retiring early in the UK and early retirement reductions cover that in general; your scheme quotes the figure for each date.

The LGPS shows what to ask. Its member site says a deferred member can take their pension from 55, that “You do not need your former employer’s consent to take your pension early”, and that it will normally be reduced, although the employer has a discretion to waive the reduction. Other schemes set their own rules on consent, so ask yours whether anything needs the employer's agreement. Early payment on health grounds has its own test: see ill health retirement.

When redundancy terms pay the pension without a reduction

Some public service schemes treat redundancy as a reason to pay a pension early and in full, to members old enough and with enough service. The answer changes completely with the scheme.

Local government (LGPS, England and Wales)

Regulation 30(7) of the Local Government Pension Scheme Regulations 2013 (SI 2013/2356) says:

Where an active member who has attained the age of 55 or over is dismissed from an employment by reason of redundancy or business efficiency, or whose employment is terminated by mutual consent on grounds of business efficiency, that member is entitled to, and must take immediate payment of

— legislation.gov.uk, SI 2013/2356, regulation 30, read 20 October 2026

The pension that follows is payable "without reduction", with additional pension bought under regulation 16 adjusted, and a later paragraph of the same regulation, (9), limits all this to members with two years' qualifying service. The member site gives the three tests as redundancy or business efficiency, the two-year period and age 55 or over, and says extra pension bought through Additional Pension Contributions, Shared Cost Additional Pension Contributions or Additional Regular Contributions is reduced for early payment, while pension bought through a Qualifying Additional Pension Arrangement is not. It also repeats the Government's announcement that the earliest age rises from 55 to 57 from 6 April 2028. The regulation says the member "must take" payment, so it is not a choice to defer. It covers England and Wales; a local government scheme member in Scotland or Northern Ireland should ask that scheme for its rules.

NHS

The NHS Pension Scheme is designed differently. NHS Business Services Authority says redundancy pension benefits need active membership, at least 2 years' qualifying membership (or a transfer in from a non-occupational scheme) and an age between your minimum pension age and normal pension age; in the 2015 Scheme that is 55 up to the later of 65 and State Pension age, and the ages differ for older sections of the scheme. GPs, non-GP providers and GP surgery staff are not eligible, and nor is anyone whose employment ends "in the Interest of Efficiency", though those leavers can still retire with benefits not reduced for early payment.

Eligible members can defer the pension and take the redundancy payment, retire early on a reduced pension, or retire unreduced. The last is possible only "if your employment terms and conditions let you use part or all of your redundancy payment to cover the cost of paying your pension early", known as the capitalisation cost. You "incur this cost only if you claim your pension early and choose to have an unreduced pension". If the cost is more than the redundancy payment, the member has the option to pay the rest, or pay part and take a smaller pension, and in some situations the employer is liable for the shortfall. Who bears such costs in general is covered in pension strain in redundancy.

Everywhere else

Other public service schemes, such as the Civil Service, teachers, police and the armed forces, have their own terms, as do private-sector schemes. Ask for the scheme rules and your employer's redundancy policy. USS members should see the USS redundancy guide.

Redundancy pay and the pension are separate money

Statutory redundancy pay comes from your employer. GOV.UK says you will normally be entitled to it as an employee with 2 years or more at your current employer: half a week's pay for each full year under 22, one week's for each full year from 22 to under 41, and one and a half weeks' for each full year at 41 or over, with service capped at 20 years. For redundancies on or after 6 April 2026 the weekly pay cap is £751 and the maximum is £22,530. You lose it by refusing suitable alternative work without good reason, and dismissal for misconduct is not redundancy.

Employers can pay more, and voluntary redundancy is a package the employer designs. Whether it counts as redundancy for pension purposes is for the scheme to say: the NHS, for instance, calls its Mutually Agreed Resignation Scheme “a form of voluntary severance” that is “not redundancy”.

On tax, the guidance says you do not usually pay tax on the first combined £30,000 of statutory redundancy pay, enhanced redundancy payments and non-cash benefits, and pay tax on anything above it. The law is section 403 of the Income Tax (Earnings and Pensions) Act 2003, which counts what "exceeds the £30,000 threshold" as employment income; section 401 brings in payments connected with the termination of employment. Payment in lieu of notice is taxed as earnings and sits outside that band, and your employer's payroll works out the deductions.

Paying redundancy money into a pension

Contributions your employer makes to a registered pension scheme as part of your termination payment are, under the same termination payments guidance, not charged to tax and National Insurance, though tax is due on employer contributions above the annual allowance. Ask the employer before the payment is made whether it will do this.

For the 2026/27 tax year GOV.UK gives the annual allowance as £60,000. It counts everything paid into a defined contribution pot by you or anyone else, and for a defined benefit scheme it is the increase in the pension over the tax year; unused allowance from the previous 3 tax years may be carried forward. Your own payments get tax relief up to 100% of annual earnings, and how much of a redundancy payment counts as earnings is for payroll or an adviser to confirm. The allowance can be lower for someone who has flexibly accessed a defined contribution pot or who has a high income. See the annual allowance guide, the tax charge and pension tax relief.

Questions to put to the scheme and the employer

• What would the pension and tax-free cash be on the earliest date and on later ones, with and without a reduction?
• Do the scheme rules or my employer's terms pay early on redundancy, and does anything need employer consent?
• Can part of the redundancy payment improve the pension, and who meets any shortfall?

Redundancy also attracts unwanted contact. The FCA says the safest response to an unexpected pension call is to end it, and the regulators' view on leaving a final salary scheme is in should I transfer my final salary pension?. With the scheme's quotation and the employer's offer both in hand, an FCA-authorised adviser can set them against your State Pension and savings: enter both, figures included, in the form on this page.

Questions people ask about redundancy and a final salary pension

Can I take my pension if I am made redundant over 55?

Only if the scheme allows it. The LGPS in England and Wales pays in full on redundancy from 55 to members with two years' service, and the NHS can where the capitalisation cost is met; elsewhere it turns on whether the scheme allows early payment and how it reduces it. See retiring early in the UK.

Does voluntary redundancy change what happens to my pension?

That depends on whether the scheme treats the exit as redundancy, so ask it and your employer to confirm before you accept.

What if I have under two years' service?

You may be offered a refund or transfer instead of a deferred pension, depending on the scheme's rules and type.

Your next step

Ask the scheme for its figures and redundancy terms, and your employer for the package in writing. A few lines about your pension and your redundancy terms in the form on this page are enough to bring a no-charge call from an FCA-authorised adviser.

Sources: GOV.UK, Workplace pensions; Early retirement, your pension and benefits; Redundancy: your rights; Tax on termination payments; Tax on your private pension contributions; Income Tax (Earnings and Pensions) Act 2003, sections 401 and 403; SI 2013/2356, regulation 30; LGPS member site; NHS Business Services Authority, NHS Pensions; MoneyHelper, Defined benefit pension schemes explained (archived 26 July 2026); FCA, Pension scams.