Asked to cover cost of early retirement upfront! - help needed

MLAB

Apologies if this has been covered already.

I work for a national gov body and having been granted early flexi-retirement, have been asked that I pay an up front £25k before I can take my benefits to cover the cost to the pension fund of my early retirement.

Surely this amount should be deducted from my pension benefits?

It seems completely unreasonable to expect people to find/borrow such amounts in order to proceed with retirement.

I have already queried this twice with HR and they insist that this is the only way for me to be able to take early retirement.

I would be very grateful of advice on this on how I can avoid having pay these costs up front.

dunstonh

Can you name the pension scheme that is doing this as most of the Government ones will reduce the benefits if you retire early. The exception would be if they are giving you the option to buy the benefits rather than lose them. In which case, you would be expected to pay for these up front as it would be classed as a pension contribution

greenglide

It also seems completely unreasonable to expect the other people in the scheme (or the employer / tax payer) to fund your early retirement.

Under normal circumstances would this payment not be made by the employer as part of the early retirement agreement or have they just agreed for you to go and the funding of the pension is up to you and the fund?

Remember, pensions do not grow on trees, to pay you "extra" they must get it back from other members / the employer.

kidmugsy

MLAB wrote: »

I work for a national gov body and having been granted early flexi-retirement … have been asked that I pay an up front £25k before I can take my benefits to cover the cost to the pension fund.

I would be very grateful of advice on this on how I can avoid having pay these costs up front.

(i) Well I never! I certainly keep learning new stuff in this forum.

(ii) But hold on! If they've got it correct, you may be being offered a great bargain. Think about it: having your pension reduced by x% might be lousy value compared to stumping up £25k. Put otherwise, spending that £25k may be the equivalent of buying an index-linked annuity on unusually good terms. To be offered such a deal at a time when borrowing costs are unprecedentedly low is a double blessing.

(iii) In other words, it sounds like another lousy deal for the tax-payer. Trust the govt apparat to look after its own in front of the taxpayer, eh? Twerps!

MLAB

I think the last 2 posters are getting the wrong end of the stick.

I have absolutely no problem in having my benefits reduced i.e. that it is I (not the tax-payer) who pay for my early retirement. But what I would have expected (which is common in the private sector), is that whatever the cost is to the Scheme is deducted from benefits prior to payment. Usually an early retirement commutation factor is applied for this type of arrangement.

Seabee42

Well I would suspect that early retirement in your scheme has to be approved. In the circumstances you describe perhaps approved early retirement is undiscounted and the only way they can give you approval is if someone covers that "cost".

Since I have never come across that before I suggest you speak to them as it is very unusual.

MLAB

Seabee42 wrote: »

Well I would suspect that early retirement in your scheme has to be approved. In the circumstances you describe perhaps approved early retirement is undiscounted and the only way they can give you approval is if someone covers that "cost".

Since I have never come across that before I suggest you speak to them as it is very unusual.

Thanks. It does seem odd that this cost cannot be deducted from my pension benefits.

The letter I've received from the Pension Fund does state that the arrangement for covering this cost is to be agreed with my Employer, and so suggests that other gov organisations permit this to be deducted from benefits prior to payment and others request the money to be paid up front.

kidmugsy

MLAB wrote: »

I think the last 2 posters are getting the wrong end of the stick.

No, do pay attention. One way or the other you are going to have to pay. My point was that borrowing £25k and handing it over is quite possibly far cheaper for you than taking a cut in pension. Is that really so hard to understand?

Freecall

Surely it's all in the numbers.

What exactly is the £25k buying?

If it is a good return then I wish I could have some.

:j

MLAB

Apologies if my second post was a little misleading.

I'm past the goverment pension scheme '85 year rule' and so my pension benefits are not affected, this £25k is the cost to the fund of me taking my pension early (by 3 years). Why this cannot be deducted from my lump sum payment I do not know?

Just to clarify, I would not be losing any pension this way.

xylophone

I work for a national gov body and having been granted early flexi-retirement, have been asked that I pay an up front £25k before I can take my benefits to cover the cost to the pension fund of my early retirement.

I'm past the goverment pension scheme '85 year rule' and so my pension benefits are not affected, this £25k is the cost to the fund of me taking my pension early (by 3 years). Why this cannot be deducted from my lump sum payment I do not know?

I am utterly mystified - are you able to name the Pension Scheme in question?