Years ago, our parents and their parents secured one job when they left school and stayed with that role for the entirety of their employment lifetime. Today, it’s almost mandatory to bounce around from pillar to post in the working world, quite literally, for a number of good reasons. The net result of this however is a variety of Irish pension pots sitting with a number of different employers, in your name.
Irish Pension Questions For “Moving On” Answered
The options surrounding what we can/should do when leaving employment can often whirl around our head and leave us in a spin. So let’s tackle some of the most frequently asked questions here.
Q1. What are my options on leaving employment?
There are many possibilities available. Some or all of the following may apply to you. You may need to consult a financial advisor in order to assess which is the best option for you.
- Leave your accrued pension fund with your old employer
- Transfer your pension fund to your new employer, if permitted
- Transfer the value of your pension to a Personal Retirement Bond (Buy out Bond)
- Refund of pension contributions paid by you (certain criteria apply)
- New Employer takes over your original scheme
- Transfer the value of your fund to a PRSA (certain criteria apply)
- Retirement Options
Q2. Should I leave my Irish pension where it is?
As an employee, current or past, you have the right to leave your funds in the pension scheme. In order to ascertain what is the best decision, let’s take a look at all relevant information:
Leave everything as is
- Is your pension scheme a Defined Benefit / Defined Contribution pension scheme? For employees paying into DB pensions, it may be hugely beneficial to leave the money sitting in that scheme.
- You may be giving up the option to access the pension pot from age 50 by transferring it to a new scheme.
- If you are unfortunate enough to be transferring benefits at the wrong time, you could be out of the market for a period of time. If you sold out at a lower price and bought in at a higher price, this could affect the overall unit holding in your fund i.e. the more expensive the unit price, the less units you will be able to buy in the fund.
- You may lose touch with the trustees of the old pension scheme, annual statements get lost in the post or are just not sent to deferred members. Lack of information can lead to decisions being made without all the relevant information required to act wisely.
Move on to greener pastures
- There’s a lot to be said for consolidation. This ease of administration appeals hugely to a lot of people. A large number of investment or pension pots go unclaimed every year in Ireland. This is simply as a result of people forgetting that they had these smaller pensions from past employments. Some are not even all that small!
- Knowing that all of your retirement money is in the one fund, can make it easier to see what you are eventually entitled to in retirement.
- Transferring a pension fund to a new scheme can be a way of availing of the ‘refund of contributions’ option inclusive of your old employers contributions, if you choose to leave your new employer within a 2 year period. If you leave employment within 2 years, an employer can take back the pension contributions they made on your behalf. So this is an alternative way around that.
- Attempting to access your pension from a company that no longer exists or where you may have left on bad terms could prove to be more difficult than needs be. Moving your pension fund when you leave employment might just be a cleaner slate in certain circumstance.
Q3. Why would a Retirement Bond be of benefit to me?
A retirement bond, otherwise known as a Buy-out-Bond, will allow you to retain control over the pension fund. All the decisions regarding its investment, risk ratings, potential charges, access and retirement rests with you. You essentially take back control of your own money. You are allowed one bond per employment, so you may end up with a number of Retirement Bonds in your lifetime, but all will be in your name, owned and controlled by you. There is also the potential to access this bond from age 50 as opposed to waiting for your retirement at 65 years. No additional contributions can be made.
The only downside is potentially slightly higher charges when you move away from the cheaper costs associated with an employer pension scheme but slightly less expensive than transferring to a PRSA. Working with a trustworthy advisor who assigns fair charges in this transfer process could benefit you hugely in the long run.
The value of a Personal Retirement Bond is also paid out on death to the owners estate which differs to how a pension is paid out on death in an Irish pension scheme. A PRB can often be a lot more advantageous to the receiving family members.
Q4. Can I get a refund of my pension contributions?
In general we would advise against taking any money out of a pension until retirement. Most people don’t start their pension early enough so taking money out of it will reduce your eventual retirement pot even more.
This option can be availed of in the event of employment for 2 years or less. You will only get back your own contributions so therefore you forfeit all pension payments made on your behalf by your employer and you will also be met with a 20% charge for doing so.
If you were a 20% director of the company, this option is not open to you.
Q5. Should I transfer to a PRSA?
A similar approach to the Retirement Bond – transferring your scheme fund to a PRSA allows you to retain control and the decision making powers over your retirement fund while in a PRSA. The main differences surround the benefits at retirement – these are based on PRSA rules as opposed to the pension scheme rules which would be associated to a Retirement Bond. You can also continue to contribute to this policy, as can your employer.
Transferring to a PRSA is also dependent on a couple of factors like years of service in the employer scheme and lump sum amount. As with the Retirement Bond, charges associated to PRSAs can also be slightly on the higher end compared with an employer pension scheme.
Q6. Can I access my pension and draw down my benefits when I leave my job?
Depending on your age, retiring your benefits could also be a viable option for you. Any private pension can be drawn down from age 60, however, some pension scheme rules set down a minimum access age of 65. If you are age 50+, you may also have the right to access the funds immediately. However, the decision to do so should depend on your financial circumstances. Ideally you should delay accessing your retirement fund for as long as you can in order to allow your pension fund more time to grow and also to give you less time to depend on the income from it in retirement.
It is vital that you seek expert advice on your Irish pension to ensure the new investment strategy chosen meets your requirements. Before you decide, you need to understand the set-up and ongoing charges under the product chosen. Research into the options that are available to you at the time is essential. A trustworthy advisor will lay out all these possibilities for you in a simple format and include the costs involved allowing you to make an informed decision in relation to the future of your retirement fund.
If you’d like to speak to someone about your pension, please don’t hesitate to contact us. We’d love to hear from you and a chat costs nothing!