New EEC rules on final salary pensions?

elona

I have been trying to talk my husband into taking early retirement while his final salary pension scheme is still available.

A neighbour who is younger than DH and works for a private company that also still has a final salary scheme said that he has thought of taking early retirement but that new EEC rules means he would lose 6% for every year he retires before age of 65, so if he left at age 58 he would be about 42% worse off.

Has anyone else heard of this plan or when it takes effect?

Has neighbour just misunderstood something that is just a rumour , if that?

Debt_Free_Chick

A misunderstanding. There are no EU or any other "rules" that require a 6% reduction or any reduction at all. It's down to the individual scheme rules. However, the reduction cannot be too severe as the trustees must pay an early retirement pension which represents fair value, compared with the deferred pension that would be paid at normal retirement date.

6% pa is relatively common and "about right", though.

Andy_L

Neighbour may be confused & thinking of the UK rules that limit the lowest age at which you can take a pension. Currently 50 but rising to 55 in 2010

elona

Thanks for the help.

Am still working on DH to retire sooner rather than later as I think either the scheme will soon become much less attractive due to the financial climate or else the Government will raid it somehow.

With our luck it could be both;)

MikeJones_2

Hi elona,

elona wrote: »

I have been trying to talk my husband into taking early retirement while his final salary pension scheme is still available.

There are a number of key issues relating to drawing pension benefits early from a defined benefit scheme.

Some are obvious:

e.g.
- Question: Is there an early payment penalty?
- Answer: Yes or No,

and others are more subtle:

e.g.
- Question: How is the penalty applied?
- Answer, either
(a) to the pension accumulated to the date of early payment or
(b) to the pension estimated at Normal Retirement Date and then reduced by the 'penalty'.

There's a lot to consider (I note you've also posted about the merits of taking a lump sum in a separate post) and you ought to seek advice for something that is a one-off and, once taken, irreversible decision.

This free factsheet might help to start with:

- Early Payment – Active Members of a defined benefit scheme

Best of luck.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

elona

Thank you Mike!

I'll get DH to ask for more information and see if he still has the chance of early retirement advice from an impartial source.