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7th February 2012
:: Scheme Member | Redundancy | Redundancy - Early Payment | Active members of a DB scheme

Redundancy: Early Payment – Active Members
Quicknote – possible changes caused by redundancy
 
Changing from an Active Member to a Preserved Member in a defined benefit scheme
 
 
Normal Retirement Date:
 
Your Scheme Rules will determine the minimum and maximum age limits from which you are allowed to draw your pension benefit, but as a quick reference:
  • For the vast majority of members in a defined benefit scheme, normal pension age (or Normal Retirement Date as it is most commonly referred to) will fall between the ages of 60 and 75.
  • Until 5th April 2010, the current normal minimum pension age from a registered pension scheme is age 50 (with a few exceptions).
  • On 6th April 2010, this minimum rises to age 55 for most of us (with a few exceptions).
  • There are some schemes with a Normal Retirement Date lower than age 60.
  • In some schemes, members can retire once they have completed a specific number of years of pensionable service (e.g. 30 years pensionable service entitles the member to payment of pension benefits).
  • In some pension schemes, members can retire on full benefits once their age and number of years pensionable service reach a set figure (e.g. the ‘Rule of 85’ for Local Government scheme members).
 
 
 
 
  
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In terms of when YOU can draw your pension benefits depends upon the Rules of your pension scheme. From 6th April 2006, much more flexibility has been introduced into pension legislation, and you may be allowed (subject to the Scheme Rules) to take your benefits at different times.
 
 
Early payment
 
Your scheme may allow early payment - although schemes do not have to include this option within the Scheme Rules. Under the terms of your employment, you may have a contractual right to take your pension benefits earlier than your Normal Retirement Date (this would usually be detailed within your Contract of Employment or Terms of Engagement letter). You should check whether this applies to you.
 
The Scheme Rules may give you the right to early payment, or you may need to obtain the consent of the trustees or the consent of the employer (or both).
 
Early payment rules may be different for active members to any which exist for preserved members. Examples of differences could be:
  • A complete loss of the option for you to be able to retire early, once you become a preserved member.
  • You may lose access to potentially generous early retirement provisions which are only available to active members, if such generous terms exist in your scheme.
  • Any penalties which apply for taking your benefits early may be greater for preserved members than for active members.
  • Whilst early payment may be available now, it may be withdrawn in the future.
For those members close to Normal Retirement Date it is not uncommon to be offered an improved early retirement package as part of the redundancy settlement.
 
 
Summary
 
If early payment is important to you, it is essential that you investigate whether it is available and whether the terms of early payment change if you become a preserved member.
 
People seldom have identical pensions and you should avoid drawing comparisons with colleagues whose circumstances may at first appear the same but could emerge as having significant differences.
 
This Quicknote forms part of our Module about Redundancy and should be read alongside the other Factsheets and Quicknotes in the series.
 
This is not an authoritative document. Seek professional advice from an appropriately experienced and qualified adviser.
 
Redundancy: Early payment v1.4 Active
Last reviewed 12/08/2009
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Redundancy: Early Payment - Active Members
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