Re employment after redundancy and early pension

Lemily14

Hi guys,

So just a quick question, don’t know if anyone will know the answer but worth a try. My mother currently earns £38500 per year, she’s 60 and has 6 years before her retirement date. She was in a DB pension scheme that closed in December (now in a DC scheme). Her work have offered her a redundancy package of £40000 and I believe if she is made redundant she can take her DB pension early with no penalties as she is over 55, can someone confirm or deny this? Also, if she takes the redundancy and collects her pension can she look for another job and work again or will her pension be stopped? She’s been a nursery nurse most of her life and is now a nursery manager. If she was to look at re employment it would probably be supply nursery nursing or full time as she needs a term time job due to child care.

Thanks

Dazed_and_confused

I believe if she is made redundant she can take her DB pension early with no penalties as she is over 55, can someone confirm or deny this?

The administrators of the pension scheme could.

No one on here can tell you anything about a pension scheme you haven't told us the name of.

Albermarle

made redundant she can take her DB pension early with no penalties as she is over 55,

There could be some confusion here . Any pension can be taken at age 55 without 'penalties' ( but not before ). However if you voluntarily start taking a DB pension earlier than the normal retirement date (NRD) the annual pension payable is reduced , simply because you will be getting the pension for more years . This is not really a 'penalty' but just a recalculation as you are taking it before the NRD.
Anyway as said above you need to speak to the administrators of the scheme, as many schemes have their own special rules.

Also, if she takes the redundancy and collects her pension can she look for another job and work again or will her pension be stopped?

Once a DB pension is in payment , then it does not matter if you work or not , it still will be paid. Be aware that pension income is taxable , so will be added to any work earnings when tax is calculated ( as will the state pension when it becomes payable. )

GunJack

Albermarle wrote: »

Any pension can be taken at age 55 without 'penalties' ( but not before ).

Can't agree with that statement - any DB scheme brought into payment early (unless extenuating circumstances as with OP's mother) wll be actuarily reduced, or "penalised" for taking it early. e.g. f you'd biult up £10k p.a. to date, but jacked in your job and took the pension, you'd get less than £10k p.a., typically around 5% per year early less than £10k....that's a penalty...

Tom99

GunJack wrote: »

Can't agree with that statement - any DB scheme brought into payment early (unless extenuating circumstances as with OP's mother) will be actuarily reduced, or "penalised" for taking it early. e.g. f you'd built up £10k p.a. to date, but jacked in your job and took the pension, you'd get less than £10k p.a., typically around 5% per year early less than £10k....that's a penalty...

When offering redundancy packages the 5%pa reduction is often waved making it a good deal.

jimi_man

GunJack wrote: »

Can't agree with that statement - any DB scheme brought into payment early (unless extenuating circumstances as with OP's mother) wll be actuarily reduced, or "penalised" for taking it early. e.g. f you'd biult up £10k p.a. to date, but jacked in your job and took the pension, you'd get less than £10k p.a., typically around 5% per year early less than £10k....that's a penalty...

Which is exactly what he said in his next sentence!


Actuarial reduction is supposed to be cost neutral and therefore is not a penalty. You are effectively getting the same amount of pension over the lifetime (estimated) but spread over slightly longer.

nigelbb

GunJack wrote: »

Can't agree with that statement - any DB scheme brought into payment early (unless extenuating circumstances as with OP's mother) wll be actuarily reduced, or "penalised" for taking it early. e.g. f you'd biult up £10k p.a. to date, but jacked in your job and took the pension, you'd get less than £10k p.a., typically around 5% per year early less than £10k....that's a penalty...

It's not a penalty as in the end you will end up receiving more or less the same amount of pension in total just at a lower yearly rate. A penalty would be if you received significantly less e.g. £5K/annum.

Dazed_and_confused

My vote goes to not a penalty.

GunJack

It's a penalty as your income per year is reduced. Whether it's cost-neutral over your life...how long you going to live? No-one knows that, and I'd argue that having a reduced income p.a. is a penalty to you personally, at best it's not a penalty to the pension scheme..

nigelbb

GunJack wrote: »

It's a penalty as your income per year is reduced. Whether it's cost-neutral over your life...how long you going to live? No-one knows that, and I'd argue that having a reduced income p.a. is a penalty to you personally, at best it's not a penalty to the pension scheme..

It's not a penalty as you receive the same amount in total & it's worked out by actuaries so on average you will receive the same amount in total pension over your lifetime whenever you start claiming it. Nobody knows how long they are going to live whether they claim their pension early or take it at normal retirement age or defer.

Dox

GunJack wrote: »

It's a penalty as your income per year is reduced. Whether it's cost-neutral over your life...how long you going to live? No-one knows that, and I'd argue that having a reduced income p.a. is a penalty to you personally, at best it's not a penalty to the pension scheme..

You're being far too simplistic. Getting your pension years before the rules say you should isn't a 'penalty' - it's actually a considerable benefit, which you seem to be happily ignoring to try and justify your argument. Actuarial reductions are there to stop some members getting more than their fair share of the fund at the expense of other members. Removing the reduction for early payment is extremely costly and requires the employer to put yet more cash into a pension scheme which, if it is like the majority of private sector DB funds, is already in deficit.