early retirement

4paws

My wife has worked for her present employer some 27 years. They have now asked her to take early retirement. Up to recently this company has paid a monthly pension to people in the 50-60 group who have left on early retirement.

They have now informed (yesterday) my wife that under new government rules this has changed, and that pensions will now only be paid to 55 year old onwards. Though she
will still receive a lump sum now and a pension paid at 60

Can some one please advise on this ruling
thank you

dunstonh

Its age 55 from the year 2010. Currently its still 50.

waterstar

HM Revenue & Customs in technical document "RPSM08100030" available at

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm08100030.htm

appears to suggest that it is for Pension Trustees to make the change to age 55 as normal minimum pension age at any time between April 2006 and April 2010, not that it is in April 2010 that the normal minimum pension age changes for all to 55, simply that is the date that the change must have been made by:-

"It is for schemes/employers to decide how and when to make this change in a way that best suits their needs."

I am also in the position of wondering what will happen if the Final Salary Scheme of which I am a member changes the normal minimum pension age, i.e. my 50th birthday falls between April 2006 and April 2010 and I can currently take a pension from age 50.

I only offer the above as my research on the subject and I certainly do not claim to be offering an authorative view; rather the converse, I do not have an understanding of the situation and would welcome any authoritative views/interpretations of the HM Revenue & Customs in technical document "RPSM08100030".

My personal view is that with any change in rules there will be "winners and losers" and I wonder whether all of the focus to date has been on "A-Day" changes with little discussion of what will happen to individual "final salary scheme members" when schemes do change their "normal minimum pension age".

If I am going off at a tangent and my concerns are totally misplaced I welcome any of the regular posters on this board correcting me.

Thanks in advance.

EdInvestor

Hi Waterstar,

You're right that trustees can choose a date between A day and 2010, they don't have to leave it till the last minute. The insurers seem to have decided en masse to adopt the 2010 date.

4paws

How old is your wife now?

Debt_Free_Chick

Waterstar

Your assessment is correct. It is for the company/trustees to implement the new rule i.e. retirement from age 55 onwards. They can do this by making the change now, gradually over the next four years or simply leaving it until April 2010.

4paws - get your wife to tell them that she thought this change was coming in from April 2010 and see what they say. They must have amended their rules to make this change and all members should be told about rule changes.

Post back with any more information

I can't see why a company would do it now - unless they have generous early retirement terms and want to limit the cost of new early retirements!

dunstonh

The trustees can overide the 55 age now if they want to. So, if they have changed early, they can agree to waive that before 2010 and break no rules.

Decent trustees are usually flexible although you get some that are not.

waterstar

Debt_Free_Chick wrote:

I can't see why a company would do it now - unless they have generous early retirement terms and want to limit the cost of new early retirements!

I have little experience of pension/actuarial calculations although with a background in finance I believe I understand the general principles.

It seems to me that, in theory, the trustees of any "scheme" ought to be able to do an actuarial calculation to determine if it would be in the scheme's "interest" to make the change as early as possible or as late as possible in the window from April 2006 to April 2010. Such calculation would then pick up Debt_Free_Chick's example of "generous early retirement terms" and presumably ultimately reduce the funding cost to the employer?

Or have I misunderstood the obligations of the "Pension Trustees" and the relationship between Pension Trustees and an Employer?

Debt_Free_Chick

waterstar wrote:

It seems to me that, in theory, the trustees of any "scheme" ought to be able to do an actuarial calculation to determine if it would be in the scheme's "interest" to make the change as early as possible or as late as possible in the window from April 2006 to April 2010. Such calculation would then pick up Debt_Free_Chick's example of "generous early retirement terms" and presumably ultimately reduce the funding cost to the employer?

No need to go that far

All the trustees need to do is to use "cost-neutral" early retirement factors. This means that the cost of paying the pension now is no more than the cost of paying the pension at normal retirement age.

This works where the scheme rules allow the trustees to set the early retirement factors based on actuarial advice. However, some schemes have rules which actually specify the early retirement reduction e.g. 5% for each year early that retirement occurs. This reduction might have been "cost-neutral" some years ago, but is not in today's climate. And the trustees are unlikely to be able to change this rule. Firstly, rule changes are usually instigated by the employer and secondly, it probably amounts to an "entitlement" which means that it's an inherent part of the pension promise.

So ... it really depends on what the rules of the scheme state. But where cost neutral factors are used, there really shouldn't be any reason to refuse payment of an early retirement pension.

Regards

Debt_Free_Chick

dunstonh wrote:

The trustees can overide the 55 age now if they want to. So, if they have changed early, they can agree to waive that before 2010 and break no rules.

But they have to amend the rules to put in the new age 55 requirement now. By default i.e. with no rule change, the current rules continue to apply.

Decent trustees are usually flexible although you get some that are not.

I would go further than this and say that they are required to act in the best interests of the members so they ought to have a good reason for either changing the rules or leaving them as they are. As the new legislation leaves this rule change to them, I would want to know their reasoning for making the change now.

Regards

Debt_Free_Chick

Re-reading 4paws original post, I wonder if she's simply had a general announcement about the A-day changes and that this doesn't apply in her case?

dunstonh

Debt_Free_Chick wrote:

Re-reading 4paws original post, I wonder if she's simply had a general announcement about the A-day changes and that this doesn't apply in her case?

Possibly. It does seem strange that the trustees would have altered the scheme in 30 days of the new legislation when there is 5 years to do it.

It couldnt have been done until the rules came in and by the time the trustees have meetings to discuss and implement it, I dont see 30 days being enough.

But they have to amend the rules to put in the new age 55 requirement now. By default i.e. with no rule change, the current rules continue to apply.

I was assuming they had amended it to 55 until you posted your later comment. In the past I have put cases to trustees to allow individuals do something different to the scheme rules and whilst some trustees dont even consider what is being requested, others will take a view and make a decision.