UK - A growing number of employers are looking at ways of reducing early retirement costs, Watson Wyatt claims.
The consultant says that while some employers are limited in the cuts they can make by contractual obligations, many are tightening up their rules.
Earlier this year, the £2.6bn J. Sainsbury Pension and Death Benefit Scheme told members they would have to give six months’ notice of an early retirement request – a move which is expected to save it £6m a year.
And the £5.3bn Greater Manchester Pension Fund stopped members taking an ill-health early retirement pension, getting another local government job and then retiring with a bigger combined pension.
Watson Wyatt senior consultant Stephen Yeo said: “There is definitely increased recognition of the cost of early retirement.
“In some cases the generosity of early retirement benefits from defined benefit schemes has been thrown into focus by the presence in the workforce of employees who are not members of the DB scheme.”
Watson Wyatt’s latest biennial survey of more than 200 pension schemes found that over the last two years 12% had reduced early retirement pensions compared with 2% which had improved terms.
Yeo added: “Where early retirement terms are not contractual, changes can usually be made with relative ease by, for example, raising the minimum age or service qualification for an early retirement pension, but employers have needed to be more careful if there has been a long-standing practice of allowing early retirement on generous terms.”
Higham Group partner Russell Agius agreed. “A possible way to tighten up company costs might be to review the early retirement factors, with a view to bringing them into line with current market rates, as opposed to, favourable, fixed rates.
However, extreme care is needed. Unless factors are set at the actuary’s discretion they are likely to be seen as reducing accrued benefits,” he said.
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