The United Kingdom Steering Committee on pensions, which represents local government employers' interests, is consulting councils on ways to improve the management of retirement in local government.
The proposals are based on the views of a working party of finance, personnel, pension administration and medical professionals (LGC, 20 September).
'All this is basically an attack on the level of compensation being paid by local authority employers to staff who loose their jobs through redundancy,' said MPO pensions adviser Cliff Crook.
The incidence of early retirement has increased dramatically over the past decade and put pressure on council pension funds. A survey of 15 funds by financial consultants William M Mercer found only 19% of people now retire at the normal age.
Both the DoE and the Audit Commission are scrutinising early retirement practice in councils.
In a consultation paper published this week the UKSC points out that in some councils half of those retiring do so on ill-health grounds, while in others only a fifth do.
The paper says this is probably due to 'different management practices' rather than factors such as stress.
Most of the measures proposed by the UKSC do not require legislation. They range from encouraging councils to detect and prevent stress, which can lead to early retirement, and significantly reducing pensions in cases where staff find other work after leaving council employment on health grounds.
Staff who find employment in local government after claiming an ill-health pension have their pension cut if their new earnings push their total income above the level of their old salary.
The UKSC has suggested extending this practice so that it applies to all post-retirement earnings, including private sector income.
Staff can take early retirement, with a bumped-up pension as compensation, if they are made redundant or leave in the interests of the efficient exercise of the authority's functions.
Councils could be advised to avoid the maximum compensation under the new guidelines, which some councils routinely pay in redundancy cases.
Local government now employs some 350,000 fewer staff than 20 years ago, and the UKSC recognises that early retirement has been 'extremely useful' as a management tool to make implementing staff cuts easier.