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  • FIRST POST
    • dunroving
    • By dunroving 10th May 17, 6:58 PM
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    dunroving
    Negotiating early retirement/voluntary severance
    • #1
    • 10th May 17, 6:58 PM
    Negotiating early retirement/voluntary severance 10th May 17 at 6:58 PM
    I suddenly have found myself in an unexpected (and hopefully positive) situation with regard to my current employment and employer-based defined benefit pension..
    Background: I just turned 60 and after a boatload of calculating, getting pension projection, etc., I realised that (a) I can't quite retire this September and feel comfortable and confident with the pension and lump sum I'd get., but (b) I could retire a year later (Sept 2018), and work between Sept 2017 and Sept 2018 on a 0.6 contract (3 days/week) - let's call that Plan B.
    I met with my line manager yesterday to discuss Plan B and to my surprise not only was she very supportive on my plan, she suggested I talk to HR because there is a small-scale, not very widely-publicised voluntary severance program, which might allow me to go this September.
    Needless to say I am delighted at the prospect of going in 5 months, but the numbers need to add up.
    My current Plan B adds up for the following three reasons: (a) it reduces the early retirement factor by postponing a year; (b) it enables me to earn an additional £38k in salary (i.e., additional capital to potentially put into my pension MPAVC and take as a lump sum); and (c) it increases my pension by about £500 per annum based on accruing 0.6 year additional employment-based DB contributions.
    To go early, I need to be in a not-much worse position to what I'd be in if I continue to work to my Plan B, above. I have never been in this situation before and have no idea what I can, and can't negotiate. I am pretty sure the VS offer will include some lump sum additional cash. I don't know whether (a) I can negotiate a reduction in the Early Retirement Factor, and/or (b) I can negotiate an additional 0.6 years service on my pension.
    Are these things typically negotiable? I could potentially calculate and achieve a higher pension by putting a large enough lump sum into my MPAVC and reverse-commuting it into additional pension. The commutation rate is about 34.4, so a £40k lump sum for example would yield an additional £1,163 p.a. pension.
    Or essentially, is a VS package a situation of "Here's what we are offering you, take it or leave it"?
Page 1
    • Marine_life
    • By Marine_life 10th May 17, 10:06 PM
    • 782 Posts
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    Marine_life
    • #2
    • 10th May 17, 10:06 PM
    • #2
    • 10th May 17, 10:06 PM
    I suddenly have found myself in an unexpected (and hopefully positive) situation with regard to my current employment and employer-based defined benefit pension..
    Background: I just turned 60 and after a boatload of calculating, getting pension projection, etc., I realised that (a) I can't quite retire this September and feel comfortable and confident with the pension and lump sum I'd get., but (b) I could retire a year later (Sept 2018), and work between Sept 2017 and Sept 2018 on a 0.6 contract (3 days/week) - let's call that Plan B.
    I met with my line manager yesterday to discuss Plan B and to my surprise not only was she very supportive on my plan, she suggested I talk to HR because there is a small-scale, not very widely-publicised voluntary severance program, which might allow me to go this September.
    Needless to say I am delighted at the prospect of going in 5 months, but the numbers need to add up.
    My current Plan B adds up for the following three reasons: (a) it reduces the early retirement factor by postponing a year; (b) it enables me to earn an additional £38k in salary (i.e., additional capital to potentially put into my pension MPAVC and take as a lump sum); and (c) it increases my pension by about £500 per annum based on accruing 0.6 year additional employment-based DB contributions.
    To go early, I need to be in a not-much worse position to what I'd be in if I continue to work to my Plan B, above. I have never been in this situation before and have no idea what I can, and can't negotiate. I am pretty sure the VS offer will include some lump sum additional cash. I don't know whether (a) I can negotiate a reduction in the Early Retirement Factor, and/or (b) I can negotiate an additional 0.6 years service on my pension.
    Are these things typically negotiable? I could potentially calculate and achieve a higher pension by putting a large enough lump sum into my MPAVC and reverse-commuting it into additional pension. The commutation rate is about 34.4, so a £40k lump sum for example would yield an additional £1,163 p.a. pension.
    Or essentially, is a VS package a situation of "Here's what we are offering you, take it or leave it"?
    Originally posted by dunroving
    Whether its negotiatble or not will depend on what sort of company you work for. I work for a very large company and the HR director said to me "some people think this is a huge Turkish Bazaar - it isn't". What came out what something ultra precise.....but there's no harm in trying.
    Hi, we’ve had to remove your signature. If you’re not sure why please read the forum rules or email the forum team if you’re still unsure - MSE ForumTeam
    • GSP
    • By GSP 10th May 17, 10:40 PM
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    GSP
    • #3
    • 10th May 17, 10:40 PM
    • #3
    • 10th May 17, 10:40 PM
    My brother was made redundant a number of years back. I don't have the numbers but believe he was able to put all his money into his pension and waive the lump sum. As above, assume it depends what organisation you work for and what they are able to do for you.
    • dunroving
    • By dunroving 11th May 17, 7:07 AM
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    dunroving
    • #4
    • 11th May 17, 7:07 AM
    • #4
    • 11th May 17, 7:07 AM
    I'm at a university, and get the impression that redundancies (or severance as they seem to prefer calling it here) work differently in many ways to industry. I think, as in this case, at universities certain units have the leeway to look at, for example, a highly-paid professor who is really not pulling their weight and give them a monetary incentive to retire early. It's ironic really that the bad ones are more likely to get a good deal, whereas high contributors are more likely to be turned down for VS.

    In my case, I am not at a salary level of a professor, but I'm "up there". Knowing that I plan to retire soon, there is a strategic incentive to help me go sooner and bring in a younger (cheaper) academic with lots of vim and vigour and other worthwhile characteristics (and did I say, "cheaper"?). Although I am a high net contributor, for health reasons I need to go part-time and cut back on extra hours, which poses logistical problems for them, so it is just simpler to get me out and bring in a F-T replacement. (so in this way it is also different than many redundancy situations where they are just trying to cut down on staff numbers).
    Last edited by dunroving; 11-05-2017 at 7:20 AM.
    • bowlhead99
    • By bowlhead99 11th May 17, 8:45 AM
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    bowlhead99
    • #5
    • 11th May 17, 8:45 AM
    • #5
    • 11th May 17, 8:45 AM
    Your problem from a negotiating perspective is that while keeping your 5 day a week job is an option if you're still capable of doing it, and quitting your job is an option if you no longer want to do it, there isn't an automatic right to decide you'd like to do your job 3 days a week and then make them recruit a part-timer to do the other 40% of your hours that you'd rather not do.

    So, if they say "we'd like to give you a redundancy package of £a, of which £b is tax free and £c is taxable and your pension can be drawn in xyz manner... you might find it hard to argue "well I think you'll need to up your offer because if I just follow my plan B, I would get more out of you". Where plan B involves only doing 60% of the hours that your contract says you should work and would require them to reorganise your role and recruit to fill the hole in it.

    Essentially, it's easier to negotiate when you have strong bargaining chips - rather than when you are relying on them to first offer to halve your hours and set you up for a cosy retirement and then go and bid against themselves to offer you even more money to induce you to leave.

    Having said that, public sector institutions with a decent budget for redundancies and an HR department who are not always incentivised to create bottom-line cost savings for their "business", may come up with an expensive result (for the university / taxpayer) that those in the private sector would give their right arm to be offered.

    If you're trying to assess your options and see what they might be able to offer, make sure you know the value of what it is that you're being offered both in financial and non financial terms (ie the cash amount and the lifestyle impact of working 5 days vs 3 days vs 0 days).

    For example you mentioned that you expect if you worked as bit longer on only a part time basis, you could get a £500 bump to your annual pension. Imagine instead they pay you off with cash. To buy an annuity guaranteeing £500pa, presumably increasing annually with inflation and perhaps giving an ongoing spouse benefit after you die, could cost £20-£25k. To be honest, with £20-25k in your hand you could invest wisely and draw £500 for life without eroding the real-terms value of your capital - but not without taking investment risk while a defined benefit pension has virtually none.
    • dunroving
    • By dunroving 11th May 17, 12:16 PM
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    dunroving
    • #6
    • 11th May 17, 12:16 PM
    • #6
    • 11th May 17, 12:16 PM
    Thanks Bowlhead, that's useful. I think when HR come back to me I'll be in a better idea about whether what they are offering is even in the ballpark.

    I have already met with Pensions (to find out the retirement options I have), and from a pension forecast from USS, I know what I'd get if I retire this September (not quite enough) and have calculated approximately what I'd get if I continue one year at 0.6 FTE and what I'd get if I continue one year at 1.0 FTE (i.e., full-time). From this I have calculated that I could follow the middle option and be in an acceptable financial position and a much better quality of life position. So, Option B is certainly acceptable/desirable for me.

    I have also met with HR, to discuss the process of applying to go 0.6 FTE, and have met with Occupational health, whose doctor has written a fully supportive letter saying moving to 0.6 FTE is necessary for health reasons. I have also met with my line manager who is fully supportive. So, although I don't have an automatic legal right to choose to go part-time, it would be highly unusual/irregular/unsupportable (think "union") for my application to go P-T turned down. From that perspective, I think (?) that addresses your point about maybe not being in a strong bargaining position(?)

    I think from my calculations, I'd probably be looking at a cash equivalent offer of about £17k to convert to additional pension, plus at least £30k to cover the lost capital, so at least around £50k ... the only unknown is the reduction of the early retirement factor, and I *think* USS will do this if the employer supports it (I don't think it costs the employer anything).

    I realise I am in a fortunate position because (a) as you say, public sector seems to be a lot more generous in these situations and (b) if it doesn't work out, I can still go back to Plan B.

    [Edited to add: Just to clarify, I have not applied to go P-T yet - when I met with my line manager to discuss it she said to hold off and look into voluntary severance first. So, I'd look into/apply for VS first and if it didn't work, I'd then submit my application to go P-T.]
    Last edited by dunroving; 11-05-2017 at 12:20 PM. Reason: Point of clarification
    • bowlhead99
    • By bowlhead99 11th May 17, 1:16 PM
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    bowlhead99
    • #7
    • 11th May 17, 1:16 PM
    • #7
    • 11th May 17, 1:16 PM
    Yes - if you have medical professional recommendation to take a gentler last year and are a member of a union who would express outrage if their member wasn't allowed to cut his hours down, you are well-armed ; especially when the HR is motivated to hit their targets in a redundancy programme rather than necessarily save overall current and future costs because they're not in a profit-maximising organisation.

    Good luck with it.
    • atush
    • By atush 11th May 17, 1:34 PM
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    atush
    • #8
    • 11th May 17, 1:34 PM
    • #8
    • 11th May 17, 1:34 PM
    Quite often, redundancy can bring about a smaller (or even no) actuarial reduction of your pension. Leaving your LS but not getting your extra 38K salary.

    What you need to weigh up i the min you will take, to make it worth your while. If they wont get to that figure, go to plan B.
    • dunroving
    • By dunroving 14th Jun 17, 4:36 PM
    • 437 Posts
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    dunroving
    • #9
    • 14th Jun 17, 4:36 PM
    • #9
    • 14th Jun 17, 4:36 PM
    Just a brief update following the helpful responses to my previous comments. I just met with HR and they walked me through what VS would look like, and how it would work (process for applying, etc.) Key points are:

    VS would give me a lump sum equivalent to 10 months salary (ca. £52k), of which £30k is of course tax-free. This is based on my 10 years continuous service (1 month pay for each year service). From Googling other university VS schemes, this seems pretty good.

    The offer did not include any enhancement or contribution to pension (e.g., the university won't pay USS to remove the early retirement factor). Essentially, it is a VS-only package (i.e., not linked explicitly to early retirement - which in some ways is good as I *could* potentially defer taking my pension, rather than having to take it when I take VS)

    However, they could (and have in the past with other VS folks) allow me to use some or all (subject to annual allowances) of the lump sum to buy extra pension (though he did not know how much pension that would yield). This potentially would allow me to mitigate the early retirement factor.

    My back of an envelope calculations say that if I took the £30k tax-free portion of the settlement as cash, that would be equivalent to my take-home pay if I worked part-time at 0.6FTE for a year. So financially, that's a wash (except of course I wouldn't have to work!)

    The "X-factor" I'd need to consider therefore is whether applying the remaining £22k (rather than taking as taxable cash) to my USS pension would make up the difference between what I'd get if I paid into USS for one more year (i.e., from working 0.6FTE). I think it probably would, especially if I defer taking pension for a year (I wouldn't want to defer longer than that, as I want to move house and need the pension TFLS to do that).

    The university will pay £300 towards legal costs for legal advice on the settlement agreement, but I don't know (a) where to start finding an appropriate solicitor and (b) what typical costs would be for that sort of advice (and what the advice would consist of ... it seems if several people have gone through this before the agreement is probably pretty standard and contains no big surprises - but maybe that's a naive attitude).

    All in all, I am feeling really quite positive about this and the likelihood is that I will take the opportunity to stop work now rather than continue for a year P-T. Just lately my job has been wearing me down, I've had a few additional health issues (nothing major) and just feel like it is time I drew my full-time work life to a halt and got on the bike and in the garden more often.
    • eskbanker
    • By eskbanker 14th Jun 17, 4:55 PM
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    eskbanker
    The university will pay £300 towards legal costs for legal advice on the settlement agreement, but I don't know (a) where to start finding an appropriate solicitor and (b) what typical costs would be for that sort of advice (and what the advice would consist of ... it seems if several people have gone through this before the agreement is probably pretty standard and contains no big surprises - but maybe that's a naive attitude).
    Originally posted by dunroving
    Google for local solicitors with employment law specialists - they will indeed be familiar with settlement agreements (for a capped fee) and pitfalls to look out for, but they'll typically be looking purely from a legal Ts & Cs perspective (what are the employers rights and obligations, etc) rather than anything to do with financial planning so you may need to engage separately with a financial advisor if you're looking for guidance or advice on your options there.
    • dunroving
    • By dunroving 14th Jun 17, 5:24 PM
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    dunroving
    Google for local solicitors with employment law specialists - they will indeed be familiar with settlement agreements (for a capped fee) and pitfalls to look out for, but they'll typically be looking purely from a legal Ts & Cs perspective (what are the employers rights and obligations, etc) rather than anything to do with financial planning so you may need to engage separately with a financial advisor if you're looking for guidance or advice on your options there.
    Originally posted by eskbanker
    Thanks for the advice - I am meeting with a solicitor next Monday about making a will so I may see if they have experience with employment law and whether there is a capped fee for looking at a settlement agreement.

    I am pretty OK with the financial side of things and as my plan originally was to only work one more year, on a P-T basis and then retire, I think the sums will be pretty straightforward to figure out. I think if I was in a position where I'd been planning to work another 2-5 years, it would have been more difficult. From all my online searching, the VS decision is harder for people who have many working years left because they then would be looking to find another job.

    Essentially, it looks to me that this VS package will probably put me in a similar position to where I'd be if I worked one more year and will simply allow me to retire a year earlier than expected. As far as the university is concerned though, I could drag on for another 5+ years so it is probably good value for them in comparison to what I'd cost over 5 years..
    • atush
    • By atush 15th Jun 17, 11:02 AM
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    atush
    The "X-factor" I'd need to consider therefore is whether applying the remaining £22k (rather than taking as taxable cash) to my USS pension would make up the difference between what I'd get if I paid into USS for one more year (i.e., from working 0.6FTE).
    Consider also paying into a DC pension (the 22K would become 27.5K) and then you could increase the period before you draw your DB pension reduced.

    If this is better or not than buying the added pension (which is then reduced by taking early) will be clear once you have the relevant figures.
    • dunroving
    • By dunroving 15th Jun 17, 2:04 PM
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    dunroving
    Consider also paying into a DC pension (the 22K would become 27.5K) and then you could increase the period before you draw your DB pension reduced.

    If this is better or not than buying the added pension (which is then reduced by taking early) will be clear once you have the relevant figures.
    Originally posted by atush
    The 22k is a taxable amount so if I'm understanding correctly, it would be £22k that would end up in DC pension. The university will not allow me to put it into the DC section of USS, only the DB section. I am not sure exactly why, but they/USS don't have to let me use any of it directly for pension as far as I know so the only way to put it into DC would be if I took the cash (and paid tax on it), and paid it into a SIPP or similar then got the HMRC top-up to £22k..

    I am currently thinking to use it for additional DB pension, but to defer taking the pension for one year. Essentially I think that pension-wise I'm probably then looking at a very similar scenario to what I'd have if I worked P-T for a year and then retired. So it's looking more and more like a no-brainer decision. The $30k tax-free element of the VS settlement will pay for living expenses during the year so I don't really need to start taking the pension this September.
    • atush
    • By atush 15th Jun 17, 2:46 PM
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    atush
    you take the 22K, pay tax, then put it back into a DC pension. So it would be only 22K in that instance. But you wold get your tax back, and could use this money after you turn 55 to live on.

    You could put in additional money if you have savings to spare and it is within your annual allowance (or carry forward from previous years)
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