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I am a 58-year-old male who has been on long-term ill-health absence from work due to complications from surgery that went wrong.
I now receive Invalidity Pension of €237 per week as well as a small income-protection payment of about €80 per week from my employer, along with continuing pension contributions of about €450 per month.
I have just recently been offered the option of early retirement due to ill-health by the company, but there is absolutely no pressure on me to accept it. My pension pot is currently about €150,000.
We own our home, have no mortgage, and the only outstanding money owed is about €4,000 on a credit card. My wife is in full-time employment and earns about €45,000 per annum.
Would I be better off accepting the ill-health retirement or remain as is on the income protection with continuing pension contributions?
The reader is likely to secure a far better pension pot for retirement if the current arrangement is continued over the next seven years, says Daniel Hardiman, managing director of Hardiman Life & Pensions.
It is also worth keeping in mind that the reader may lose other benefits outside of pension contributions, he says, such as health insurance, should he decide to take early retirement.
First and foremost, however, Hardiman advises seeking independent financial advice on the matter, especially if the reader is under any financial pressure.
“Based on a fund value of €150,000, they would be entitled to a tax-free lump sum of at least 25 per cent of their fund value (€37,500), and the remaining 75 per cent balance of €112,500 would have to be used to either invest in an Approved Retirement Fund (ARF) or to purchase an annuity which would provide a guaranteed income for life,” he says.
If the €112,500 left over was used to purchase a single life annuity with no increases for inflation, this would provide a guaranteed income of €416 per month for life, he says.
This pension income would be only “marginally higher” than the income protection payments, while the reader would also lose €450 per month in future funds.
On the other hand, should the reader decide not to take early retirement and continue to receive the employer’s contributions, their pension pot could reach €210,000 by the time they reach 65 years of age, he says.
Although not guaranteed, this is based on a “conservative” investment growth of 2 per cent per annum, Hardiman explains.
“This would provide a 25 per cent tax-free lump sum of €52,500, and the remaining 75 per cent would secure a higher annuity rate as a 65-year-old with a guaranteed pension of approximately €682 per month based on today’s standard annuity rates, which are subject to change,” he says.
“My initial reaction is that this does not look like a good offer for him,” says independent HR consultant and workplace investigator Michelle Halloran of Halloran HR Resolutions.
The offer of early retirement, which would essentially be a cost-saving measure for the employer, seems to be a win-win for the employer but a lose-lose for the reader, Halloran says.
As long as the reader is certified as unfit to work, his position is secure, she says.
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“There’s no legal issue here, they’ve offered him early retirement and are not compelling him, so the ball is in his court,” she says.
If the reader remains medically unfit for work, the employer is obliged to continue to pay his pension contributions and income protection until he has recovered or has retired, she said.
“The income protection is not a lot of money, but he is still getting contributions to his pension, so once he reaches retirement age, he’ll have more there,” she says.
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