Early Retirement

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When an employee retires
Early retirement
If an employee decides to take early retirement, there are implications for both employer and employee.

Points to consider:
With early retirement, the employer and employee are mutually agreeing to end the contract of employment.
Early retirement can't be forced on an employee, or it will be viewed as a dismissal in law - the employee must have a genuine choice between early retirement and continuing in employment - even if they may, for example, be made redundant if they continue working.
Voluntary early retirement means you don't have to pay notice or redundancy payments, though many companies do offer financial incentives.
Where the employee is entitled to a pension from your occupational scheme, payment may be brought forward if it's permitted by the scheme rules. Where the employee is not entitled to a pension from the scheme, provided they have been in the scheme for at least three months, they must be given a choice of a refund of contributions or a "cash transfer sum" that can be transferred to another occupational or personal pension scheme.
The rights of employees to convert pension rights to lump sum payments is subject to specific tax rules. You can read about the rules governing pensions on the Pensions Advisory Service website - Opens in a new window.
It's against the law for employers to operate a retirement age that is different for men and women.
Consider whether you want to offer the option of early retirement to all employees above a certain age or only in certain instances, eg in redundancy situations.
If lots of employees take early retirement at around the same time, you could be losing vital experience in parts of your business. It might also affect the motivation and commitment of your remaining staff, including any whose retirement applications were refused.
Where early retirement has been agreed, it is good practice to provide written details of:

the amount of occupational pension they will get and when it is to be paid
the amount of any tax-free lump sum that is payable
any other benefits that they are entitled to
Give the employee enough time to consider the offer and to respond to it in writing.

If your employees think they may have lost track of an old pension from a previous workplace, they may find it helpful to use the Pension Tracing Service - help an employee trace an old pension on the Pension Service website - Opens in a new window.

Subjects covered in this guide
Introduction
Retirement - the process to follow
Pensions and retirement
Providing support for a retiring employee
Early retirement
Ill-health-related early retirement


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PAS Helpline
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Actions
Download guidance on age discrimination and retirement from the Acas website (PDF) - Opens in a new window
Read guidance on employers' responsibilities regarding pensions on the Pensions Regulator website - Opens in a new window
Help an employee trace an old pension on the Pension Service website - Opens in a new window
Find advice on pensions on the Pension Service website - Opens in a new window
View local and national events linked to this topic
Also on this site
Know your legal obligations on pensions
Issue the correct periods of notice
Making an employee redundant
Dismissal
Prevent discrimination and value diversity