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Client Case Study
Name | Bernard
Age | 50
Bernard worked for a large company that recently relocated meaning he changed employment. After discussing his needs with one of our advisors, it was determined the best course of action for Bernard’s situation would be to transfer to a Buy-Out-Bond.
This gave Bernard the opportunity to access 25% of his fund tax-free as well as being in full control of how the remaining 75% was invested. Bernard decided to go down the AMRF/ARF route.
Fund Value: €470,000
Client Case Study
Name | Colin
Age | 55
Colin worked for an Irish telecommunications company and was part of their Defined Benefit pension scheme for 24 years. He left employment 6 years ago and was looking to assess his options.
Following a consultation with an advisor, Colin decided to transfer his pension benefits into a policy in his own name. This enabled Colin to access 25% of his benefits free of tax.
He also wanted to ensure that should anything happen to him, his pension was inheritable to his spouse. Both Colin and his advisor weighed up his specific situation along with the scheme rules associated with his benefits and decided this was the best course of action.
Inheritability and the rules regarding a scheme should be looked at on an individual basis.
If your situation is similar to either of the above and you would like to assess your options, feel free to contact our team.
We have helped clients who have worked for some of Ireland's largest companies
Defined Benefit transfers are becoming a hot topic in Ireland.
A change to Government legislation in 2016 also allowed for more flexibility surrounding these schemes.
Are you a deferred member of such a scheme? If so, it may be a good idea to weigh up your options.
A deferred member is a former employee (you) who still has a benefit entitlement and has not yet retired.
Currently, many employers are also offering the opportunity of enhanced transfer values to deferred members.
We work alongside a team of fully Qualified Financial Advisors who have walked countless clients through this process.
Many are eligible for a 25% tax-free lump sum.
The remainder of your fund can be invested to suit your attitude to risk.
If you are a member of a pension scheme from previous employment, now is the time to discuss your options.
Table of Contents
What is a pension transfer?
Depending on your scheme and its ruleset, you may be eligible to transfer your pension.
However, a lot will also depend on your situation.
Consulting a Qualified Financial Advisor is always encouraged before making any decision.
With these particular schemes, you may also be able to access a 25% tax-free lump sum.
We have helped many clients in these situations. Contact our team today to see if you are eligible to access your pension.
What is a Defined Benefit Pension Scheme?
Defined benefit pension schemes are a particular type of occupational scheme.
In a defined benefit scheme, there is a specified amount that will be paid to a member on retirement.
There are different factors such as salary and years of service which are considered when calculating the pension/lump sum to be paid on retirement.
For such an arrangement, all member’s benefits are essentially pooled together.
Therefore, it is worth noting that in such an arrangement you do not have your specific fund. You also do not have control over which funds your pension is invested in.
Considering this, the performance of the fund can often be a concern for members.
Therefore, Defined Benefit transfers are an attractive option for many deferred members of occupational pension schemes.
Transferring out of a Defined Benefit scheme
Many pension arrangements generally allow you to transfer your benefits from one scheme to another.
If you are a deferred member of your company’s defined benefit pension scheme, transferring out could be an option for you.
Is it worth noting that your DB pension is essentially an ‘I.O.U.’ It is a promise made by your employer to pay you a defined annual income at retirement.
However, this promise can only be kept if there is money there to meet the liability at that point in time.
Defined Benefit transfers give you the option to move your funds to a Buy-Out-Bond. Also known as a PRB (Personal Retirement Bond).
How do I transfer out of a Defined Benefit scheme?
Beginning the process of transferring your arrangements is quite simple. In the beginning, you will have a brief chat with an advisor.
From here they can gauge your situation and discuss what options may be available.
After this, your advisor can contact the relevant parties on your behalf.
You are under no obligation to proceed but you will have the opportunity to discuss what may be best for your situation.
Many clients then like to have a more in-depth conversation with their advisor. Our team take a non-jargon approach and always ensure you understand all options available.
Our advisors have over 100 year’s combined experience and have dealt with some of Ireland’s largest DB schemes.
Benefits of Defined Benefit transfers
Recently, many deferred members are taking the option of transferring out. The opportunity to take control of their money along with some other benefits seems to be a driving factor.
Some of the benefits our clients have spoken about since transferring are: –
- Taking ownership of your pension
By transferring to a Buy-Out-Bond, you are now in full control of your pension. You now choose your provider along with exactly how the funds are invested.
- 25% tax-free lump sum
Choosing to transfer out of your DB scheme to a Buy-Out-Bond enables you to access 25% of your fund tax-free.
- Avoid potential insolvency of the DB Scheme
Although DB Schemes do have advantages, there is also risk associated with such schemes. The benefits within the scheme could reduce drastically before you reach retirement age. This means you may not eventually get what you were promised.
- Enhanced Transfer Value
At present many employers and scheme trustees are offering enhanced transfer values (ETVs) to deferred members. This enhanced value could be of benefit in your current circumstances.
Enhanced Transfer Values
As of late, many companies are looking at ways of reducing the volatility of their DB Schemes. Offering ETVs gives them a cost-effective way of reducing pension risk while simultaneously improving the scheme funding position.
If you are a deferred member of your previous employers’ DB scheme, you could potentially use this to your benefit.
Taking an Enhanced Transfer Value
You could be eligible for an enhanced transfer value if you: –
- Are a current employee where the scheme has ceased to accrue future service benefits
- Are a deferred member – i.e., a former employee who is not in receipt of benefits.
Employers may offer current employees the opportunity to transfer to a defined
Whereas deferred members may have the ability to transfer to a separate arrangement. For example, a Buy-Out-Bond.
To make the above transfer option more attractive to deferred members, this is where an ETV may be offered.
Below is an example of Defined Benefit transfers along with ETVs
What happens if I die as a deferred member?
Death, and how pensions are transferred will be scheme dependant. However, as your pension may likely be your largest financial asset, you should know how yours will be affected.
If you are a deferred member of a DB scheme, your pension may not be fully transferrable.
Many schemes state if a deferred member dies only 50% will be passable to their spouse or estate.
We know these are not exactly conversations people enjoy having but organising it now will save the pain in the long run.
Again, this is where having a financial advisor by your side can give clarity.
What is a Personal Retirement Bond (PRB)?
We have referred to Buy-Out-Bonds a couple of times throughout this page. They are also known as PRBs which are Personal Retirement Bond.
A PRB is a personal policy that gives you the ability to transfer your lump sum from your occupational pension scheme. Once transferred to your PRB, you will now have full control over the funds. You will have the ability to choose a strategy that aligns with your attitude to risk.
Many can access their PRB from age 50 onwards. You will potentially have access to a 25% tax-free lump sum while the remaining must be invested as per pension legislation.
This means you must satisfy AMRF / ARF regulations.
ARF & AMRF | How do they work?
Luckily, we have taken the time to breakdown exactly how these works. If you would like to learn more about each, please follow the link to the relevant section.
Questions to ask yourself about your DB scheme
How do I start the process of accessing my DB scheme pension?
The easiest way to begin assessing your options is by contacting our team.
Our advisors are industry experts and will only allow you to transfer if it is the right decision for your situation. A holistic approach must be taken when discussing such decisions.
If you would like a free no-obligation chat please leave your information in the contact box or give us a call.
Call us: 01 890 3518