Redundancy vs Early Retirement

ian.smith7

Hi Everyone
I am not sure this is the correct forum for this question but it seemed a good place to start.

There are some redundancies at work and it is possible I will be selected as a victim.
I understand one of the options being offered is Early Retirement instead of Redundancy (not sure if it is a legal requirement that this option is offered). Exactly what will be offered as an inducement to take early retirement instead of redundancy is not clear at the moment but presumably it will be some lump sum addition to my DC pension plan and immediate access to the money (I am over 55).
For me it is about which offer would give the most tax free money.
Just so I can get a handle on the companies position regarding this offer my question is:
What benefit is there to the COMPANY in my accepting Early Retirement instead of Redundancy?

Hope someone can help with this
Cheers
Ian

NoMore

Presumably it will cost the company less, as the pension has already been paid for, while redundancy payments have not.

Even with inducement to take it, they are probably saving money.

As to whats best for you, I wouldn't know without figures. But for redundancy only the first 30k would be tax free, while upto 25% of your pension would be tax free.

ian.smith7

Hi thanks for the reply,
I would expect the inducement to be more than I would receive in redundancy (Probably £25 - £30K) it is possible I would not actually have to access my pension to tide me over to my next job.
The Question is more aimed at gauging whether the Early Retirement offer is as generous as it could be or if i would be saving the company money (Tax NI other costs?) and why they would offer it in the first place?
ian

GunJack

ian.smith7 wrote: »

Hi thanks for the reply,
I would expect the inducement to be more than I would receive in redundancy (Probably £25 - £30K) it is possible I would not actually have to access my pension to tide me over to my next job.
The Question is more aimed at gauging whether the Early Retirement offer is as generous as it could be or if i would be saving the company money (Tax NI other costs?) and why they would offer it in the first place?
ian

Surely you should (if you have a choice) pick which option is best for you, not the company??

Be sure to look at other possible factors, such as access to benefits payments, in either scenario....

squirrelpie

I think you'll need to look at the individual circumstances of your particular company's offer. Do they have a policy manual or suchlike, because that may well set out the details of the schemes they offer. If not and in any case, they should give you full details of your options if you are put at risk. I don't think Early Retirement is offered instead of Redundancy; rather it is offered as an option for people of the appropriate ages as part of the redundancy package. In the case of a DB pension, the best outcome is that they offer early access to the pension without a reduction of benefits. I don't know what the equivalent is for a DC pension. I suspect there are many reasons why a company might choose to go beyond the statutory minimums in a redundancy policy. Public perception and the perception of other employees and possible future employees about how they treat their staff could be a powerful reason. Motivating employees to select 'voluntary' redundancy rather than 'compulsory' redundancy with the accompanying news headlines might be another.

TcpnT

What benefit is there to the COMPANY in my accepting Early Retirement instead of Redundancy?

Depending on the reasons for reducing headcount etc it may make the process easier for them in terms of legal requirements for statutory consultation and for taking on new employees in the near future if the job has not actually been made redundant.

ian.smith7

"Surely you should (if you have a choice) pick which option is best for you, not the company??"
yes GunJack i would choose the best for me but is the ER inducement as much as it could be even if it is more than redundancy.

squirrelpie - i am not sure if there is a stated policy and yes 'image' is extremely important to my employer. At least one person in his 40s has been asked if he would be interested in ER.

TcpnT - The job really is going i am not being replaced but yes it is a good point regarding statutory requirements and not having enforced redundancies on the record.

Ian
still havent mastered the box quotes thingies:o

atush

If they are offering early retirement, id like to see more in the pension than they are offering in the redundancy payment.

as only 25% of the payment into the pension will be available tax free.

So 30K into the pension, or 30K redundancy? I'd take the redundancy.

ian.smith7

atush wrote: »

So 30K into the pension, or 30K redundancy? I'd take the redundancy.

I agree atush as 30K is actually only £7.5K tax free the rest of any 25% would be my own money already!!
The inducment would have to reach £50K before i could get it without touching what is already there and I cant see that happening. even though they are a really good employer.
ian
nailed that quote thingy :beer:

kidmugsy

You need the detail. Suppose, for instance, part of their offer is £40k severance pay, with the first £30k tax-free, and your having the option to tick a box so that the other £10k goes into your pension pot by salary sacrifice. That would be nice. I don't see what help generalisation is. You need the facts.