Losing your job close to retirement can have a significant impact on your personal pension arrangements. With some careful planning, you should be able to cushion yourself against some of the effects at least.
Being given notice by your employer when you're on the home stretch to retirement is a cruel blow. Establishing a clear overview of your situation will make it easier to take what action is possible:
1. Was the dismissal lawful?
Check whether your dismissal was lawful. Giving you notice solely because of your age would be considered wrongful dismissal. If there are other reasons for the dismissal, employers are bound to a greater duty of care in the case of older employers – which usually includes all employees aged 55 years or over. In the case of wrongful dismissal, you can claim compensation of a maximum of half a year's salary. For the claim to be successful, you must file it with the court no later than 180 days after the termination of your employment contract and be able to prove the wrongful nature of the dismissal.
2. What form can severance pay take?
In the case of job losses due to corporate restructuring, older employees often receive severance pay to cushion them financially from the effects of ending their career early. This may take the form of a pension contribution or cash severance payment. A cash settlement is less attractive from a tax perspective than a pension contribution.
3. Can I claim unemployment benefits?
If you are 55 or over, you are entitled to a maximum of 520 daily allowances from the unemployment fund. This corresponds to a period of two years. To receive unemployment benefits, you must register immediately with the relevant regional employment centre (RAV/ORP). They will inform of you of what other requirements you must fulfil.
4. Should I draw my state pension ahead of time?
The old age and survivors’ pension can be drawn two years prior to statutory retirement age, i.e. from age 62 for women and 63 for men. This will, however, mean a lifelong pension reduction of 6.8% per year of early retirement taken. In addition, you must continue to pay your state (pillar 1) pension contributions until you reach statutory retirement age. The amount used as a basis for calculating these contributions is the annual pension income multiplied by 20 and added to the accumulated assets.
5. Should I draw my occupational pension as an annuity or a lump sum?
Consider what you want to achieve with your occupational pension assets. Most occupational pension funds allow you to withdraw your pension from age 58 or 60. If you are already over this age, you can take early retirement. You can then choose between taking an annuity or a lump sum, or a combination of the two. However, remember that drawing your occupational pension ahead of time will result in a reduction in unemployment benefits.
6. Should I transfer my pension assets to a vested benefits account?
If you want to receive full unemployment benefits, you should arrange for your pension assets to be transferred to one or two vested benefits accounts. If you get another job, you can transfer this money to your new employer’s occupational pension fund. Otherwise, you will have to draw it as a lump sum. You have to withdraw the funds from the vested benefits foundation within five years of reaching statutory retirement age. Vested benefits foundations do not pay annuities.
7. Should I secure a later pension via the Substitute Occupational Benefit Institution?
An alternative to using a vested benefits account is to transfer your pension assets directly to the Substitute Occupational Benefit Institution. This allows you to continue making contributions to your occupational pension even if you are not employed and to withdraw it at a later time – including in the form of an annuity. You need to pay into this institution within three months of leaving your previous occupational pension fund.
If you lose your job shortly before statutory retirement age, you will need to reorganize your various pension elements in a short space of time. Reconciling them is a complex task. In addition, you need to take into account personal factors such as your level of private wealth, tax considerations, life expectancy and the age difference between you and your spouse. It is a good idea to seek independent advice to deal with this difficult situation.