What makes a good early retirement package?

A good early retirement package in the UK pays above the statutory minimum, protects your pension and shows the tax on each part; terms vary by employer.

No single package is "good" for everyone, because the pieces differ: cash, notice pay, what happens to your pension and how it is all taxed. If any of it involves a defined contribution pot, MoneyHelper says "A free Pension Wise appointment explains the options for taking money from your defined contribution pension. It’s impartial and backed by government." Bring the exit letter and your pension statements to a discussion with an FCA-authorised adviser; ask for the call in this page's form, and it costs nothing.

What can an early retirement package include?

An early retirement package is usually a "termination payment" from your employer, plus anything agreed about your pension. GOV.UK says a termination payment could include statutory redundancy pay, holiday pay, unpaid wages, "company benefits, for example bonuses or enhanced redundancy", and money paid instead of working your notice. Those are the cash pieces; the pension piece comes later on this page.

Statutory redundancy pay is the floor, and it is modest. Employees with two years or more at their current employer will normally qualify. The scale pays by age band for each full year worked: half a week's pay while under 22, a week's pay from 22 to 40, and one and a half weeks' pay from 41, counting no more than 20 years. GOV.UK says that for redundancy on or after 6 April 2026 the weekly pay used is capped at £751 and the most you can get is £22,530.

Anything above that is an enhancement, and it comes from your contract, a staff handbook, a scheme the employer runs, or negotiation. Acas lists other things a settlement agreement can cover: an employment reference, an agreed leaving date and how each payment is made.

How is an early retirement package taxed?

Part of a package can be tax free. Under HMRC's guidance on GOV.UK, the first £30,000 in total of statutory redundancy pay, extra severance or enhanced redundancy, and non-cash benefits such as company property you keep is not usually taxed. Tax is due on any amount over that combined figure, and your employer pays Class 1A National Insurance on the excess.

Other parts count as earnings whatever the size of the package: unpaid wages, holiday pay, bonuses and money paid instead of working your notice. If you do not work your full notice, part of any severance, enhanced redundancy or non-cash benefits may count as post-employment notice pay and bear tax and National Insurance; GOV.UK's worked examples say this does not apply to statutory redundancy pay, and your employer works out the amount.

Pension money is handled differently. Employer contributions to a registered pension scheme that form part of the termination payment carry no tax or National Insurance, although tax applies to employer contributions above the Annual Allowance. For how relief works on money paid in, see pension tax relief.

What should the pension part of a package look like?

The test is whether your pension can be paid now, and at what cost to you. According to HMRC the earliest age is normally 55, going up to 57 from 6 April 2028; exceptions are covered in the minimum pension age guide and protected pension ages.

Some public service schemes build the answer into redundancy terms. For the Local Government Pension Scheme in England and Wales, the member site says that if you lose your job because of redundancy or business efficiency, have met the two-year qualifying period and are 55 or over, your benefits must be paid immediately, with no reduction to your main benefits for early payment if you are under your Normal Pension Age. The NHS Pension Scheme's 2015 members' guide ties immediate payment on redundancy to the minimum pension age, two years' qualifying service and continuous employment, and contractual terms that let you claim a redundancy pension in place of some or all of the cash redundancy payment. Whether the pension is then unreduced or partially reduced depends on those terms, and your employer uses your redundancy payment to meet any additional costs, paying you any balance.

In a private-sector or small-employer scheme, the scheme's rules and the employer's offer decide what a package can do for the pension. Whether a smaller employer's scheme releases a pension early is one to put to an adviser, who can answer it free on a call back arranged with the form here.

The detail for final salary schemes is in final salary pensions and redundancy, and the general position on stopping work early is in retiring early in the UK.

How do you negotiate an early retirement package?

When the package comes as a settlement agreement, Acas says it is voluntary, reached through discussion and negotiation, and that the worker can negotiate and make a counter offer. Acas also says the discussions are confidential, and that there is no legal right to bring a companion, though it is good practice to allow a colleague or a trade union representative.

Check three things before you sign. First, Acas lists among the conditions for a valid agreement that you get advice from a relevant independent adviser who is insured and named in it; that legal advice on the agreement is a separate step from any conversation about your pension. Second, ask for a breakdown of each payment and the tax and National Insurance deducted. Third, compare your pension position with the agreed leaving date, because some tests turn on it: the LGPS terms above need you to be 55 or over and past the two-year qualifying period, and statutory redundancy pay normally needs two years with your employer.

GOV.UK warns that an employer cannot just offer voluntary redundancy to age groups eligible for an early retirement package, as this could be unlawful age discrimination, though a package for certain age groups could be one element of a voluntary redundancy offer open to all employees. If you sign a settlement agreement for voluntary redundancy, Acas says it still counts as a redundancy. Acas also says the reason employment ends can affect your entitlement to payments and financial support such as Universal Credit. Before replying to an offer, ask an FCA-authorised adviser how a different leaving date would change your pension; a free call back can be booked in the form on this page.

More questions about early retirement packages

Does everyone get statutory redundancy pay?

No. GOV.UK says you are not entitled if your employer offers to keep you on, or if you refuse suitable alternative work without good reason. It also lists categories who are not entitled, including crown servants, members of the armed forces and police services. For civil servants leaving under an employer-led exit scheme, see civil service early retirement.

Who deducts the tax when a package passes £30,000?

Tax on the excess is taken through your employer's payroll. If the payment arrives after you have your P45, the employer uses a 0T tax code, which GOV.UK says assumes your personal allowance for the year is used up.

Can an early exit package let me take my pension before 55?

Not under the normal rule, which HMRC puts at 55 now and 57 from 6 April 2028. Some people have a protected pension age or a scheme with its own age, covered in protected pension ages; to check yours, ask your scheme.

Should I take early retirement or wait for a later offer?

That depends on your pension, other income and health, so it is not something a general guide can settle. The trade-offs are covered in taking your pension early or waiting.