Early Retirement

Early retirement is one of the most commonly-offered alternatives to redundancy. Whether it is the best option for you in the circumstances is something that has to be considered very carefully.

It is important for you to understand that you cannot be forced into early retirement; and if you are being subjected to pressure, you should resist that pressure if you are not convinced it is the best option for you.

How Early Retirement Affects Your Redundancy Rights

Not everyone is clear about whether or how early retirement intertwines with your redundancy rights. The answer is clear : early retirement is not a form of redundancy; it is an alternative to redundancy. So, if you choose the early retirement option, you will have no redundancy rights. You will not receive a redundancy payment.

Why would you do it then? Good question. Typically, an employer will offer incentives along with the early retirement option, such as a large lump-sum payment.

The earliest age at which you can access your state pension is 60 if you are a woman and 65 if you are a man (for people born before 1950). Within the next decade or two, this is due to rise to 65 for both men and women, and then to 68 for both in the decades following. Private and occupational schemes operate by their own rules to a greater extent. Currently, the soonest you can access a private or occupational pension is at the age of 50. By 2010, this is due to rise to 55.

Deciding Whether Early Retirement Makes Economic Sense

It is very important to think through the financial implications of a decision to retire early. These are not always readily apparent, and this is a subject on which expert advice is highly recommended. In general, you need to bear the simple arithmetic of the situation in mind : if you retire early, your pension pot will be smaller than it would otherwise have been if you have waited until the normal retirement age; and, you will have to live on it for longer than if you had waited until the normal retirement age. Ignoring other factors, then, your annual pension income will be significantly lower.

A good rule of thumb is said to be that your pension income will ultimately be reduced by 9% for every year of early retirement. Inducements from your employer can bring this down a bit.

It is very important that you consider the financial implications of early retirement carefully before accepting it as an alternative to redundancy. Other people have unwisely opted for it and spent their twilight years living in poverty.

Working after Early Retirement

Not everyone is clear about whether they are allowed to work after they have retired early. The answer is yes. You are free to take on other employment, start your own business or do whatever you like and your pension entitlement is not affected in any way. In fact, if you choose to defer your pension because you are still earning an income, it can go on accumulating, meaning that, when you eventually claim it, you will get more than you would have otherwise.

Early Retirement – Conclusion

Early retirement can seem a tempting option, particularly when your employer offers incentives. But you need to think it through carefully to see whether you will really benefit in the long run.

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