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Client Case Study 1: Accessing Company Pension
Name | Liam
Age | 51
Liam is 51 years of age and has recently moved to new employment. Liam had an old company pension that he and his employer paid into for 18 years.
As Liam is over 50 and has left that employment, he was entitled to access his past pension benefits along with a 25% tax-free lump sum.
Liam was able to invest the remaining 75% into funds of his choice.
Client Case Study 2: Accessing Company Pension
Name | Maeve
Age | 50
Organisation X is a manufacturing company based in Dublin. They had set up a company pension scheme for 4 years but have not had it reviewed.
They approached Pension Support Line as they were unsure as to how the scheme was performing and had not been receiving regular correspondence.
Following an in-depth report by an advisor, it was decided the scheme could perform better with some adjustments to both the provider along fund choices.
These changes led to the scheme performing better as a whole but also employees receiving regular updates as well as annual reviews.
The change led to more employee engagement with a further 10 employees joining the scheme since the change.
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
Now more than ever we live in a fast-paced world where things change quickly. Our careers are now different in this regard.
Recent surveys estimate that workers now change careers, on average between 3 and 7 times.
Have you moved jobs, lost your job, or finally took the plunge and became self-employed?
If so, you are probably wondering about your options regarding any pensions you may have had.
If you were part of a DC or DB scheme, you could potentially be entitled to a 25% tax-free lump sum, as per pension legislation.
Below we have researched the different scheme types and how rules vary on each.
Table of Contents
What is a pension transfer?
Many pensions arrangements are interchangeable. This means depending on scheme you could have the option of transferring.
However, it will be dependant upon the rules of that particular scheme.
For example, if you were part of an occupational scheme and have changed employment, you could be eligible for a transfer.
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.
Pension transfers – who can do what and when?
We work alongside a team of Qualified Financial Advisors who specialise in workplace pensions.
Q. Have you left or changed employment?
Q. Were you previously part of an occupational pension scheme?
A change to government legislation in 2016 means you may now have a wider range of options.
Transferring from an occupational scheme to a PRB or Buy-Out-Bond will give you full control over your funds.
You may also be able to access 25% of your fund as tax-free cash.
The remainder of the fund can be invested how you see fit once obeying relevant pension legislation.
Pension arrangements often allow you to transfer from one to another. Here we illustrate which schemes are interchangeable.
All above will depend on scheme rules and circumstances (www.pensionsauthority.ie).
When should I transfer my pension?
If you have transferred to a new job, you could look at the option of transferring your existing pension benefits to your new employer’s pension scheme, incorporating all your benefits into one place.
However, this may not be the right approach for you so it is important to always seek advice from a Qualified Financial Advisor.
Some people prefer to consolidate their benefits and have everything under one roof, while it is more suitable for others to keep everything separate.
You can always decide to leave the current pension exactly where it is.
However, it is worth bearing in mind that the pension will rise and fall depending on how it is invested as you will have no further contributions.
A deferred member will also be able to access funds of 25% from age 50 (www.pensionsauthority.ie)
What is a Personal Retirement Savings Account (PRSA)?
A Personal Retirement Savings Account is a personal pension plan. A PRSA is a flexible arrangement that allows you to save for retirement on your terms. You can make regular contributions that are tax-deductible within certain limits.
Please see the relevant thresholds below:
|29 or younger||15% of net relevant earnings|
The maximum amount that can be contributed is €115,000 (www.revenue.ie).
Transfer your PRSA to an Occupational Pension Scheme
If you have changed jobs, you may be wondering what to do with your PRSA. Can or should you transfer it?
As with any pension transfer, it will depend on certain factors. If you are starting with a new employer who offers an occupational scheme, you may have the ability to transfer.
If the trustees of the new scheme allow the transfer, you can transfer your PRSA into your new employers’ occupational pension scheme.
However, you are not under any obligation to transfer your pension. You may leave your PRSA where it currently is and keep your benefits separate.
As with any decision surrounding your pension, it should not be taken lightly. It is always worth speaking to an expert and having them do some research. Particularly when it comes to comparing fees and charges regarding a potential transfer.
Transferring your PRSA to a new employers PRSA
Perhaps you have started employment and your employer offers a PRSA arrangement. Here you have the option of transferring your existing arrangement into the PRSA offered by your new employer.
This is a similar situation to the occupational pension scheme we looked at above.
You could potentially contribute to both, however as we have seen above, there are age-related salary restrictions that apply.
This means it may not be tax efficient to be contributing to both. The best practice is to have a Qualified Financial Advisor weigh up the situation before deciding.
What is a Defined Contribution pension?
If you have been in this scheme for two years or less, you may be eligible to access a cash sum. However, it is worth keeping in mind will be solely your contributions and not your employers.
“Defined contribution (DC) schemes are occupational pension schemes where your contributions and your employer’s contributions are both invested, and the proceeds used to buy a pension and/or other benefits at retirement. The value of the ultimate benefits payable from the DC scheme depends on the number of contributions paid, the investment return achieved less any charges and the cost of buying the benefits” (Pensions Authority)
A DC scheme has a set contribution for both the employer and employee.
For example, in a DC scheme, the employer and employee may both contribute 5% of the member’s earnings meaning a 10% total.
If this all sounds familiar, and you have been in this scheme for less than two years, you could be entitled to a cash sum, but this will only be from your contributions and not your employers.
Contact the scheme administrator for more details if you are in this situation.
How to transfer out of a Defined Contribution pension scheme?
Were you a member of a defined contribution scheme in previous employment? If you have since changed or left that employment you may be able to access your benefits.
If you do decide to transfer your benefits from a defined contribution scheme to a Buy-Out-Bond, also known as a Personal Retirement Bond, this will give you control.
Once transferred to a PRB in your name, you will be in full control of investment decisions and fund choices.
Subject to pension legislation and providing you meet the criteria you could potentially access a 25% tax-free lump sum.
If you would like to assess a potential pension transfer, contact our team to arrange a conversation with a Qualified Financial Advisor.
There is no one-size-fits-all when it comes to the financial industry and everyone’s situation is different.
The advisor will take the time to weigh up and discuss all your potential options. Perhaps transferring might not be the best decision for your current situation.
What is a Buy-Out-Bond?
A Buy-Out-Bond (also referred to as a PRB) is a policy that allows you to transfer your pension fund from an occupational pension scheme.
You can transfer benefits from your DB or DC scheme into your PRB.
Transferring to a PRB gives you the ability to have the pension in your name. Having a good advisor by your side will ensure you can invest in the funds that best suit your needs.
Transferring to a Buy-Out-Bond (PRB)
A recent study by the Pensions Authority estimates there are upwards of 400,000 deferred members of occupational pension schemes. These are people who were previously members of occupational pension schemes but have since left employment.
Were you part of an occupational pension scheme?
Have you left or changed employment?
If the answer to both questions is yes, you could be eligible to transfer to a PRB.
Following a transfer to a PRB, you may also have an option to access your benefits from age 50.
This will allow you full control and a wide range of fund choices. If you would like to assess your options, book your complimentary consultation today.
What is a Defined Benefit pension scheme?
Final salary defined benefit (DB) schemes are occupational pension schemes that provide a set level of pension at retirement, the amount of which normally depends on your service, and your earnings at retirement or in the years immediately preceding retirement (www.pensionsauthority.ie).
As we see above, DB and DC Schemes are quite different. The example below may provide more clarity regarding how exactly a DB Scheme works.
How to transfer from a Defined Benefit pension scheme?
Now that we have cleared up exactly what a defined benefit scheme is and how it is calculated, it is time to look at potential transfer options.
If you do find yourself in a defined benefit or also known as a final salary defined benefit scheme, deciding whether to stay as a deferred member can be tricky.
It is worth weighing up your options and speaking with a Qualified Financial Advisor as although there is a promise of payment, there could be external factors along with the fact other deferred members could potentially drawdown before you try to.
Also, should you die as a defined benefit member, your spouse may be entitled to a 50% payment.
Alternatively, with a buy-out-bond, the entire sum would pass to them.
Combining pension pots from previous employment
As per the above, you may have worked in several different employments and could potentially have multiple pensions.
You may have different occupational pensions as well as a personal pension.
Although it might seem like a great idea to combine all your pensions and have them in one place, this might not necessarily be the case.
Before going down the route of combining all your pensions, it is important you speak with a financial advisor.
Aspects to consider before consolidating all your pensions include: –
Any decision you make should be with long-term planning in mind. Embarking on transferring and combining all your pensions should not be done lightly.
Our advisors have experience with all major schemes and can walk you through the process.
They will ensure you understand any decision you make.
Book your complimentary consultation today.
Advantages of combining your pensions pots
As you would expect, the most obvious advantage is convenience. You will have all your pensions in one place.
This should make it easier to review and make any necessary changes. However, this alone may not warrant transferring multiple pensions into one pot.
A lot will also depend on what scheme you are. It may be better, in the long run, to stay put depending on the scheme type.
Some of the advantages of combining your pensions are: –
However, it is always worth discussing all available options. As with any decision, there will be both pros and cons.
It is important you decide what is best for your individual situation.
Becoming a deferred member of a pension scheme
The term deferred members refer to those who were previously members of a company’s occupational scheme but have since left employment.
Membership of an occupational pension scheme ceases when you leave the employment.
A 2016 report from the Pensions Authority, estimates there are upwards of 400,000 deferred pensions in Ireland from Defined Benefit pension schemes.
However, the report also illustrates how many DB schemes have huge liabilities.
If you are a deferred member of an occupational pension scheme, it may be worth assessing your options.
We have taken a deeper look into defined benefit schemes.
What are transfer values?
Transfer values are a hot topic as of late. Particularly with the increased media coverage surrounding defined benefit schemes.
As defined benefit schemes decline, many deferred members are looking for transfer values being offered.
A transfer value is offered by the trustees to deferred members as a way of alleviating some of the liabilities of a defined benefit scheme.
The transfer value may be offered, and members may have the option of transferring to a defined contribution scheme. However, you must understand the risk of a potential transfer.
For example, if you decide to transfer to a defined contribution arrangement, the investment risk will pass from your former employer to you personally.
For this reason, among others, it is important you understand all available options and the pros and cons of each.
How are transfer values calculated?
If you are looking at transferring from your defined benefit scheme, it can be difficult to decide. However, understanding how the transfer value is calculated may help you decide.
Perhaps you are wondering was it a ‘good’ transfer value you were offered?
According to the Pensions Act, the minimum ‘standard’ transfer value from a defined benefit scheme is the 100% transfer value.
Defined benefit transfer values are calculated by using a formula consisting of average earnings multiplied by years’ service.
However, as of late many employers and trustees are offering enhanced transfer values to deferred members.
We look at these in more detail below.
What are enhanced transfer values?
An Enhanced Transfer Value (ETV) offers deferred members the opportunity to transfer out of their pension scheme at a level that is above the standard terms.
These are becoming popular as of late and trustees try to reduce the liabilities of certain schemes.
An ETV gives members the opportunity to access a larger monetary amount and the abilityn to transfer their arrangement. This simultaneously gives trustees the ability to de-risk the scheme.
With a 2016 Pensions Authority report estimating upward of 400,000 deferred members costing liabilities of €12 billion, reducing these liabilities is a priority for trustees and employers.
If you are a deferred member of a scheme and have been offered an ETV, it is important you do not rush into any decisions.
Book a no-obligation, complimentary consultation with an industry expert, and assess your options.
Can pensions be transferred to a spouse?
As with anything pension-related, everything is scheme dependant. Rules surrounding the inheritability of your pension will differ between schemes.
If you are a member of an occupational pension scheme, and you die while still working, your estate will potentially be entitled to what is referred to as a ‘surrender value of your pension.
This means the value of both the employer and employee contributions made to that policy.
Again, as with all pension related queries, there are stipulations as to how it will be paid.
Under Revenue rules, a lump-sum of 4 x salary (including bonuses), plus any contributions you made to the fund, can be paid to your estate.
There may also be stipulations stating you must be in a scheme for a minimum length of time before your estate would be entitled to anything.
Your spouse may also be eligible for a widow/widower’s pension.
Some employers also off a ‘death in service’ benefit which pays out a lump sum on death. However, this is not pension related.
Can I transfer a pension from the UK?
With everything that is going on in the world, perhaps you have decided to come home.
Whether it be Brexit, Coronavirus Pandemic or it was just time to come home, you might want to look at transferring your pension.
Well, it is possible to transfer your pension from the UK to Ireland. Our advisors have vast experience with such transfers and can talk you through the process.
Transfers from the UK to Ireland are possible due to the QROPS Scheme (Qualifying Residential Overseas Pension Scheme).
What is a QROPs?
A Qualifying Recognised Overseas Pension Scheme (QROPS) is a pension scheme that can receive a transfer of a UK pension free of tax.
However, there are some charges involved with such a transfer. Our advisors have experience helping clients transfer their pensions back to Ireland.
If you have worked in the UK and are now looking to assess your pension transfer options, book your complimentary consultation.
How long does a pension transfer take?
There is no one-size-fits-all to this question. It is best to allow for between 6-8 weeks from when you complete the documentation.
Your advisor will be in constant contact with the relevant life company to ensure things are moving along.
Unfortunately, it is just something that takes time. However, knowing you are transferring your pension being fully in control will be worth the wait.
Where can I transfer a pension to?
Regarding scheme to scheme, this will depend on the rules of each. Pension transfer between certain arrangements is allowed.
For example, if you were part of an occupational pension scheme but have left employment, you may transfer to a Personal Retirement Bond.
We have illustrated below how pension arrangements can be transferred:
What is the risk of transferring my pension?
Transferring your pension is not a decision to be made on a whim. You must ensure that it is the correct course of action for your situation.
As with any financial decision, it may carry a certain level of risk. However, the best way to keep risk to a minimum is to have an experienced advisor.
Having an industry expert by your side who can evaluate all options is vital. If transferring, you must take certain factors into account.
Will fees and charges be decreased?
Will you have more fund choice options suited to your needs?
These are just some of the questions to discuss with your advisor. If you are contemplating a pension transfer, book a complimentary consultation and assess all options.
Does transferring my pension make it inheritable?
Whether a pension is inheritable and how it is inherited will depend on what arrangement you are in.
However, a pension is likely to your largest financial asset. Therefore, you must know what inheritance liabilities surround it.
For example, if you are a deferred member of a defined benefit scheme, your pension may not be transferrable.
Many schemes stipulate that if a deferred member dies, only 50% of their benefits will be passable to their spouse or estate.
However, transferring from a defined benefit scheme to a Personal Retirement Bond may prevent this. Should you pass while having your benefits in a PRB, they will pass to your estate.
It is worth noting that as with any inheritance, there will be tax implications for the beneficiary.
Again, this illustrates the importance of having a qualified expert by your side as you make decisions.
Can I access a pension lump sum?
One of the benefits of a pension transfer is that often it will allow you to access a tax-free lump sum.
For example, if you transfer from an occupational pension scheme to a PRB, you may be eligible to access 25% tax-free. You could also go down the salary and service route.
Many employers will use a formula calculating years of service along with your salary to offer a lump sum.
If you satisfy scheme rules and meet certain criteria you may be eligible to access your pension lump sum. From age 50, you may be able to take benefits from your PRB.
How to transfer your pension fund
If you have changed or left employment and were a member of an occupational scheme, it may be worth assessing your options.
You will need to request what are referred to as ‘leaving service options’ from the scheme trustees. You can begin this process by contacting our team.
We will put you in contact with a Qualified Financial Advisor who can talk you through the process. You are under no obligation to proceed but at least you will be aware of your options.
If you and your advisor believe transferring is the right decision for your situation then you can continue the process.
Is it worth transferring my pension if I am near retirement?
Approaching retirement should be a stress-free time in your life. Having the right financial advisor by your side can ensure the process runs smoothly.
We work alongside a team of Qualified Financial Advisors who are regulated by the Central Bank of Ireland. All our advisors are experienced in both pre-and post-retirement planning.
Whether you need information on taking a tax-free lump or investing your ARF, we can help.
All our advisors take a non-jargon approach to finance and ensure you understand any decision you make.
Speak to a pension transfer expert
Our advisors work alongside Irelands leading life insurance companies. Ensuring you get access to funds that suit you best.
Pension transfers can be a difficult area to navigate. Pensions can seem confusing, but they don’t have to be.
With the right advisor by your side, you can enjoy the retirement lifestyle you deserve.
If you are considering transferring your pension it is important you seek professional advice before making any decisions.