Some experts had said such a draconian move would restrict councils' ability to shed staff to meet tight budgets.
Instead, advisory group members say the commission's report, due by November, will promote a national system to help decision makers calculate the full cost.
The report is a response to concern about the high cost to council pension funds of large numbers of early retirements.
But Peter Scales, chief executive of the London Pensions Authority and a member of the advisory panel consulted by the commission, said the report was wrong.
'It will probably recommend that [councils] consider up-front payments, but the biggest issue is that the costs are made known to people making the decision.
ÒIf early retirements are funded up front that comes off council tax payers . . . My view of the principles of pensions is that you fund things over a period of years when you make people redundant.'
He confirmed early retirement was the norm at councils, with only 20% of staff retiring after 40 years' service, but stressed that did not differ from other sectors.
He said the figure of£3.8bn was meaningless as it was extrapolated from an extreme sample, included costs that would have been paid anyway to normal retirees, and ignored savings made.
Another advisory group member, Kent CC human resources manager Gordon Brown, said proposals for up-front reimbursements had never been a firm recommendation, and would be too restrictive on councils' management practices. The study is focusing on ensuring that full costs are known throughout the authority, and the commission would promote a nationally agreed format for calculating the cost.
'The Audit Commission view is that they will provide such formats agreed by professional associations and I support that fully,' he said.
Earlier this year the UK Steering Committee on council pensions advised local authorities to urgently consider lump sum payments from the department concerned to cover the strain on their funds of early retirements.
One council to adopt the measure, Essex CC, saw early retirements drop by two-thirds as a result. However, the policy has not proved popular with most other councils.
Most English and Welsh local government pension funds are underfunded. The abolition of advance tax credits on funds' UK dividend income announced in the June Budget is expected to compound the problem.