Client Case Study
Name | Peter
Age | 45
Peter worked for a manufacturing company in the west of Ireland for 17 years. Recently, the company moved its operations out of Ireland. Since then, Peter has started new employment.
Peter was part of his previous employers’ Defined Contribution schemes for the 17 years he was employed. Both he and his employer contributed equally.
Peter had a current fund value of €174,000 and was looking to assess his options. After discussing with his family and seeking advice, Peter decided to transfer his benefits into his new employer’s Defined Contribution pension scheme.
It is worth noting that this was the option that best suited Peter’s situation. There is no one-size-fits-all approach and all potential options should be considered.
If your situation is similar to either of the above and you would like to assess your options, feel free to contact our team.
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Table of Contents
What is a Defined Contribution pension?
A Defined Contribution (DC) scheme is an occupational pension scheme where your own contributions are invested alongside your employer’s contributions. Both contributions are then invested and the proceeds are used as your pension benefits at retirement.
It is worth noting that the value of your payable benefits on retirement will depend on the following factors:
- The number of contributions paid
- The investment return achieved less any fees and charges
- The cost of buying the benefits
Therefore, your contributions will be at the mercy of some variable factors.
Example of a Defined Contribution (DC) Pension Scheme
For example, in many DC schemes, the employee may contribute 5% with the employer matching and also contributing 5% of the member’s earnings.
This means a total of 10% will be invested. Benefits at retirement will be dependent on the above variables. It will not be possible to know in advance exactly what your benefits will be at retirement.
Transferring out of a Defined Contribution Pension Scheme
If you have left or changed employment, you may want to assess your options. Transferring out of a Defined Contribution scheme can be done in various ways.
The options available to you will be dependent on scheme rules and the number of years you were a member. Your options may consist of:
- Refunding contributions
- Transferring to a new employers scheme
- Transferring to a PRB/BOB
- Transferring to a PRSA
- Deferred Member
We have taken the time to break down all potential options in more detail.
Difference between DC & DB pensions?
Occupational pension schemes are made up of either a Defined Benefit or a Defined Contribution scheme. The main difference between these is that a Defined Benefit scheme promises a specific income in retirement.
Whereas a Defined Contribution scheme will depend on the contributions made as well as the funds’ investment performance.
Hybrid Schemes
These schemes are neither a full Defined Benefit nor a Defined Contribution scheme. They will have some elements of each. It is worth noting that these schemes would be quite rare but do still exist.
What happens to a Defined Contribution pension on death?
If you are a member of an occupational pension scheme with your employer and die while you are still working, your estate may be eligible to a ‘surrender value’ of your pension.
This means the value of both the employer and employee contributions made to the policy.
However, it is important to note the above will be dependent on specific scheme rules. There are rules as to how benefits will be paid out. Under Revenue rules, a lump sum of up to four times your salary, plus any contributions you made may be eligible to be paid to your estate.
Again, all this will be scheme-dependent. There may also be specific rules surrounding payment if death is within two years of joining the scheme.
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