Voluntary resignations to avoid paying full benefits

ghostgirl_2

My company has a Defined Benefit scheme that has enhanced benefit features on Early Retirement for both "Employee Initiated Early Retirement" and Employer Initiated Early Retirement".

The Company recently asked for voluntary resignations, in order to reduce the workforce by 30 to 40 employees, offering a financial incentive as a sweetener.

Those who accept the package, and who are old enough to access their pensions (which 90% of them are) are able to do so, but subject to much larger reductions than would have been the case were the "voluntary Leaver Incentive Scheme" to have been categorised as "Employee Initiated Early Retirement".

However it is not.

Instead, the company is treating the Leavers as "Deferred Members", who are subject to much larger reductions if they access their pension early than the "Active Members". In other words, when the employee "resigns", he then automatically becomes a deferred member ..For about 5 minutes?!.. He then can access his pension early, but... as a newly deferred member, and with much greater reductions than he would have had under the usual Early Retirement options.

This all seems a bit fishy. Is it legal though?

Cygnus_Alpha

ghostgirl wrote: »

This all seems a bit fishy. Is it legal though?

I don't see anything illegal about it. They are after all just asking for volunteers. And as the member is resigning rather than taking early retirement, then it is appropriate within the scheme rules to treat the member as a deferred member.

It sounds like a clever way by the employer to get round some 'inconvenient' scheme rules. I guess it all depends how good the financial sweetener is.

Hopefully the others in your workplace are as clued up as you are and understand what they are giving up in return for this sweetener.

jamesd

Presumably employees could choose to retire early instead of resigning.

The incentive may to some extent compensate for the lost pension rights of those who go for resignation instead of retirement.

The pension scheme may have rules that limit how much or even if someone can work after "retiring" so for some it might be more attractive to resign and carry on working somewhere else.

If they don't get enough volunteers they may try something more generous. They might also consider offers made by employees who aren't tempted by the current offer might might be willing to accept something else. Say early retirement with an extra six months pay paid into a personal pension. An employee who ends up on at least £20,000 of work defined benefit pension, state pensions and annuities combined could then use flexible drawdown to take out all of that money - the first 25% tax free, the rest taxed as normal income for whatever tax years they take it in. The employer has made an offer, no harm for some employees to make their own offer to their employer as well if they want to.

ghostgirl_2

Cygnus_Alpha wrote: »

I don't see anything illegal about it. They are after all just asking for volunteers. And as the member is resigning rather than taking early retirement, then it is appropriate within the scheme rules to treat the member as a deferred member.

It sounds like a clever way by the employer to get round some 'inconvenient' scheme rules. I guess it all depends how good the financial sweetener is.

Hopefully the others in your workplace are as clued up as you are and understand what they are giving up in return for this sweetener.

The company is calling it a "Voluntary Leaver Incentive Scheme" rather than a Voluntary Redundancy Scheme, because this gets around the Early Retirement rules of our pension scheme, but the fact is the ARE technically being made redundant because really this is a man-power reduction exercise. Why? Because it's not just people, but jobs that are disappearing. According to our pension scheme rules though, "Voluntary Redundancy" comes under the "Employer Initiated Early Retirement" description.

So it seems a bit "off" to follow the Deferred Route. People are not reply deferring their pensions I.E. leaving their benefits in the fund - its just a technicality that they go through being deferred for all of 5 minutes, before taking early retirement benefits at full reduction, rather that very little reduction through the Employer Initiated route.

ghostgirl_2

jamesd wrote: »

Presumably employees could choose to retire early instead of resigning.

Actually, no, the company has decided to revoke it's "Consent" to early retirement through the usual Early Retirement channels, "....for the foreseeable future."

The scheme rules require "Company Consent" for both "Employer" and "Employee" Initiated Early Retirement. Only the rules referring to Deferred Membership do not require Company Consent to take Early Retirement.

This is a Redundancy Exercise, by another name, and it's basically only the name "i.e. "Voluntary LEAVER" that's getting them off the hook with paying people the benefits they would otherwise be entitled to on Redundancy.

redbuzzard

Are there winners and losers ? If everybody gets the same incentive, then there may be some who would be better off than taking redundancy (given similar pension treatment).

The early retirement provisions (lower reductions, possibly credit for projected years service) may be discretionary anyway. There was a time when members of the scheme I was a MND for would get early retirement with full projected years, but they haven't for some years (sadly that includes me!).

In the days of surpluses the Trustee always agreed at the employers request. Now the trustee would insist on the employer writing a cheque for the additional funding requirement there and then. Needless to say, that employer never agrees now to enhanced early retirement except for Ill health, and that is subject to medical evidence and ongoing reviews.

richbeth

ghostgirl wrote: »

This all seems a bit fishy. Is it legal though?

It looks like the company may have a shortfall on their pension scheme and therefore don't want people accessing it, do you know if this is the case ?

Also, do you know if the company is in severe financial difficulties or is it being proactive to avoid this ? (this influences your negotiating position).

From
https://www.gov.uk/staff-redundant/overview



"Redundancy is when you dismiss an employee because you no longer:

• carry out the business they’re employed for
• carry out business in the place where they’re employed
• need them to carry out work of a particular kind"

So if they are not dismissing people it is not strictly speaking redundancy.

Have you received any at risk letters ? has a consultation process been launched ?

The rules for consultation also change when more than 20 people are involved so they may be trying to avoid this.

This is a link for employees (the above is for employers)
https://www.gov.uk/redundant-your-rights/overview

If they don't get their initial volunteers it would seem likely they would need to move to formal redundancy which is likely to be more beneficial for staff as the first £30k (?) of any payment is tax free.

It may be worth asking the company of they will pay for the employees to have a lawyer speak to you. I've seen companies do this on a number of occasions as it's effectively insurance against come back. The lawyer would then be able to advise you on the situation re the pension, alternatively if you all throw £20 in a pot you'll have enough to get some specific advice based upon your exact position and the rules of your pension scheme.

Richard

ghostgirl_2

redbuzzard wrote: »

Are there winners and losers ? If everybody gets the same incentive, then there may be some who would be better off than taking redundancy (given similar pension treatment).

The early retirement provisions (lower reductions, possibly credit for projected years service) may be discretionary anyway. There was a time when members of the scheme I was a MND for would get early retirement with full projected years, but they haven't for some years (sadly that includes me!).

In the days of surpluses the Trustee always agreed at the employers request. Now the trustee would insist on the employer writing a cheque for the additional funding requirement there and then. Needless to say, that employer never agrees now to enhanced early retirement except for Ill health, and that is subject to medical evidence and ongoing reviews.

Everyone who takes the package will be worse off than if it were a "Voluntary Redundancy" initiative (which has maximum reduction of 15% on our pensions), and very much worse off than they would be under our INvoluntary Redundancy initiative (which allows people with over 10 years service to take their pension from 50 onwards WITHOUT REDUCTION), under our current pension Rules.

This scheme reduces peoples pension by 7, 6, 4, 4, 4% rather than the percentages above that apply in redundancy situations.

As regards whether it falls into the category of "Redundancy", well around 25 physical jobs are being lost so it's not just a workforce reduction.

This quote is from the link posted below by richbeth:

"For a redundancy to be genuine, you must demonstrate that the employee’s job will no longer exist."

This quote applies to our situation.

The following is a quote from the slide presentation made by the Company"

"The incentive payment will be made with the employee’s final salary payment (up to £ 30,000 of which will be tax-free)

The scheme does not include an Employer Initiated Pension, regardless of age"

However people CAN access their pension without company consent AFTER they become Deferred Members. However this is on a "cost neutral" (to the fund) basis.

rpc

It sounds like the company is stretching it a little, but still OK. It is only redundancy if the company dismisses people (often called compulsory redundancy). If leaving is purely voluntary, as it is here, then there is no redundancy.

The company is probably pitching a fairly low offer and hoping they can avoid formal redundancy processes.

Some time ago, when we had a desire to reduce headcount without redundancy, there was a very good early retirement offer on the table. So good that one of the guys on our team felt he had no choice but to retire,even though he loved his job. Lump sum plus unreduced pension. Enough went that way that formal redundancy consultation was avoided for several years.

ghostgirl_2

rpc wrote: »

It sounds like the company is stretching it a little, but still OK. It is only redundancy if the company dismisses people (often called compulsory redundancy). If leaving is purely voluntary, as it is here, then there is no redundancy.

From the above mentioned .gov website:

MAKING STAFF REDUNDANT
Part 4:
Non-compulsory redundancy
This covers voluntary redundancy and early retirement.

Voluntary redundancy
This is where you ask employees if they’d like to volunteer for redundancy and then select those to be made redundant.

You must have a fair and transparent selection process and let employees know that just because they apply, it doesn’t mean they’ll get selected.

Early retirement
This is where you offer employees incentives to retire early. It is used as an alternative to voluntary redundancy.

The offer must be made across the workforce - you can’t single out specific individuals.

You can’t force anyone into early retirement - it must come from the employee.

This is exactly what the Company is doing, except they told us at a site-wide presentation that this was NOT a VER (Voluntary Early Retirement", nor a VS (Voluntary Severance) but a VLIS (Voluntary Leaver Incentive Scheme).

Can they really get around our Pension Rules simply by calling it by another name? I mean, if it walks like a duck, swims like a duck, quacks like a duck...??

zzzLazyDaisy

The company is not acting unlawfully - on the contrary, what they are doing is quite common.

Put simply.... the company has made an offer to its employees that they can leave on certain terms, if they so wish. If the terms are not acceptable, then the employees are not under any obligation to accept them, and they just carry on working for the company.

Whether these proposals breach the employees rights regarding early retirement depends on the rules of the pension scheme. No-one on here can advise you of that, you'd need to get a copy of the rules and go through them with a fine tooth comb, but it isn't very likely.

Is there a recognised trade union?