Redundancy Chicken

Here’s a game that many people now play with their employer:  redundancy chicken.

Rather than wind down into retirement by reducing their weekly hours every so often, staff with long service hold onto their potential redundancy package by remaining working full-time until either they’re made redundant, or they quit with as little notice as their contract allows.

It’s bad for the employer:  they have no warning of the impending departure because the employee keeps their cards close to their chest.  That means little chance for succession planning, replacement recruitment or handover.  It could happen mid-project or at a critical time for the business – indeed that pressure could be the trigger for the employee’s timing.  The employee’s expertise and experience could disappear in a flash just when it’s most valuable.

It’s often not what the employee wants to do.   They could work 3 days/week for 67% gross pay and try a few of the things they always wanted to do in retirement on the other days.  It’s healthier to smooth the change.  It retains an income stream and provides social interaction and self-respect.  Their behaviour is driven by the chance of a full redundancy payout and not to lose 33% of it, which might equate to 6 months net pay and even more months of “retirement pay” when people live on less.  Even more impactful, the employee doesn’t want to choose to move to 67% pay and be made redundant 2 months later.  The change to having DC pensions also means that there’s a degree of uncertainty so staff always feel that pull to work a bit more just to be sure.

Back in the days of DB pensions there was good reason to go all-or-nothing.  Staff wanted that maximum year at the end of their service so their pension could be based on it.  The hit for retiring early was fairly hard.  There was an official retirement date that could not be exceeded without employer permission.

Now it’s much more fluid.  An employee can retire at 55, or earlier if they have some savings.  And they could stay indefinitely as long as they can do the job.

So what’s the solution?  The hurdle is the loss of redundancy package.    The employer does’t want the redundancy package in place forever – imagine the employee still doing 1 or 2 days a week aged 75 but with a massive redundancy remaining from 20 years before.  The employee doesn’t want to be taken advantage of.  So the loss in redundancy could be tapered over 10 years:  for example after dropping to 3 days/week, an employee’s redundancy package reduces from being based on 100% of full-time-earnings to 67% of FTE over 10 years.  As part of the employee choosing to go for such a scheme, there might be some other terms:  agreeing to retire before state retirement age could be an interesting angle if it’s legal.

I’ll do a page on this, with some examples.

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