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What happens to my pension plan when I leave a company?

 

We frequently come across this question: “What happens to my pension plan when I leave a company?” Nowadays people are changing jobs or even careers more frequently than they used to, and it has also become a common occurrence to leave Pension savings behind with past employers. When moving from one job to another there are many important things to consider – your Pension is certainly one of them.

 

Leaving your Pension behind may be the easier route to go but it may negatively impact your Retirement Planning if it is not incorporated with your overall long-term plan.

 

This can also be a good opportunity to sit down with your Financial Advisor and review how you are meeting your Retirement objectives or how you can improve on them.

 

Leaving Service Options:

 

It’s important to note that your pension benefits are managed and legally owned by the trustees of the scheme (these include but are not limited to companies like Aon, Mercer, and Willis Towers Watson), and when departing from your company your legal status will change from an ‘Active’ to a ‘Deferred’ member of the scheme. We will later assess the downsides of staying on as a ‘Deferred’ member.

 

When leaving your employer you should receive what is known as a ‘Leaving Service Options letter’, or your ‘Pension Benefits Options Statement’. This document will include important information such as the date you joined the scheme, the date you left, the value of your Pension, and finally setting out your choices available to your particular situation upon leaving. It is therefore vital that you receive this document.

 

Essentially, you have three main options when leaving your employer.

 

  1. Leave your Pension where it is (do nothing).
  2. Transfer your Pension to your new employer.
  3. Move your Pension into an account in your own name (Personal Retirement Bond / Buy-out Bond).

 

Option 1: Leave your Pension where it is (do nothing)

 

Although the easiest option, leaving your Pension behind is the least recommended particularly because Pension schemes are under no obligation to keep any engagement with you nor provide you with annual updates on how your pension is being managed or invested. Therefore, you are left in the dark without freedom to make investment decisions.

In many cases, employees Pension savings are actually moved out of investments and into cash leaving them unable to outperform inflation and the associated charges within the fund. As a result, this hinders the growth of your Pension and may set back your Retirement goals and objectives.

 

If you are considering leaving your currently employer, and are looking to review your ; we would implore you to answer the following questions:

 

  • Are the charges fair and transparent?
  • Is the Pension Provider responsive?
  • Has your Pension performed well?

 

If your answers to the above questions did not bode well with you then it would be wise to consider taking your Pension with you.

 

Pros:

  1. As a deferred member, you will still be able access your pension at retirement date; ie, take a tax-free lump sum; and transfer the funds into an annuity, or opt for an Approved Retirement Fund (ARF).

 

Cons:

  1. The Trustees of the scheme are not obligated to keep in contact with you (no regular updates).
  2. Your Retirement options are subject to the scheme rules (including early Retirement).
  3. Bigger schemes have limited Investment options since they cater for large groups of employees (your investment could under-perform).
  4. No access to Financial Advice after you have left the company.
  5. When moving jobs, you run the risk of forgetting about the plan and losing contact with it over time.
  6. Passing away before retirement could complicate matters for your dependents.

 

Option 2: Transfer your Pension to your new employer

 

You can consider moving your existing benefits over to your new company’s pension scheme thereby consolidating your retirement benefits, however, not all schemes allow this and you would have to check first.

 

The advantage here is that you will have everything under one roof and it will be easier to work out your overall pension benefits and how much income you would expect in retirement, rather considering a number of different pots.

 

On the downside, transferring your pension benefits would require you to sell up existing assets in order to transfer them to the new fund. This would introduce the risk of being out of the market for a considerable period, and depending on market conditions, this could mean you selling out at a lower price and buying at higher one.

 

Pros:

  1. Pension consolidation – maintaining control over your pension pot and keeping it together in one place.

 

Cons:

  1. You may lose accumulated rights of salary and service if you move move into the wrong type of scheme being offered.
  2. If you move jobs again, you will have to address all previous concerns and requirements of moving into new scheme.
  3. You miss the opportunity to move the fund into your own name (taking complete control over your money and Investment choice).

 

Option 3: Move your Pension into an account in your own name (Personal Retirement Bond / Buy-out Bond)

 

A Personal Retirement Bond (PRB) is a product that is specifically designed to take benefits from your previous employment. This includes giving you greater control to administer your own pension savings, and a better investment strategy allowing you to invest at your own attitude to risk (with added benefit of guidance from a Financial Advisor). You also have the option to move the bond from one pension provider to another if you feel you could get better value on charges, fund allocation rate, and access to funds, etc.. However, it cannot be further contributed to.

 

This route allows you to completely cut ties from your old employer, which means no more involvement of Trustees. The charging structure (Annual Management Charge) can be a higher with PRB’s depending on the funds (or asset classes) chosen but this is considered along with the performance (and active management) of the fund over time. In saying that, you will have the benefit of transparency of charges (which are more competitive than company pensions).

 

Pros:

  1. Full control over your pension and Investment decisions (fund is owned by you personally).
  2. A Financial Advisor can put together a tailored investment strategy (based on your attitude to rick) to help you reach your retirement goals and objectives.
  3. Your accumulated rights are preserved (salary and service details recorded) giving you access to your tax-free lump sum entitlement, and increasing your options to draw on retirement.
  4. Move your PRB from one provider to another efficiently.
  5. Your benefits can be taken from age 50 (as with the company scheme).

 

Cons:

  1. Annual Management Charges can be higher depending on the funds/assets classes chosen.

 

What happens to my pension plan when I leave a company?

 

What do we recommend?

 

In most cases, the Personal Retirement Bond is the most practical route, it is a simple, straightforward way to take your pension entitlement with you when you change jobs. The Pension savings that you have built up are yours, so why not take personal control of the assets you own.

 

With the ongoing support of impartial Financial Advisors, we will first establish if this is the right option for you, and if so, we can help guide you through the Pension transfer process and ensure that the funds are set up correctly, managed effectively, and monitored continuously!

 

What happens at Retirement Date?

 

On retirement you can take a tax-free Lump Sum of either:

  1. 25% of your fund, or;
  2. A maximum of 150% of salary, based on salary and service.

The maximum tax-free Lump Sum you can take is €200,000.

 

The remainder of your fund can then be used to purchase:

  1. A guaranteed income for life (Annuity), or;
  2. Transfer the balance (after the Retirement Lump Sum is taken) into an Approved Minimum Retirement Fund (AMRF) or Approved Retirement Fund (ARF).

 

How do I begin the transfer process from my old employer?

 

If you are currently planning on leaving your Employer or looking to take old Pension benefits that were previously  left behind, the first step is to contact the HR Department at the company and request your ‘Leaving Service Options.

 

The HR department or pension administrator will make a request to the trustees on your behalf to issue you with your ‘Leaving Service Options Letter‘ outlining the current value of your benefits and your available options.

 

What happens to my pension plan when I leave a company?

After you have received this document you may feel free to give us a call on 01 253 3242.

 

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Alternatively, if you would like to speak to one of our Qualified Financial Advisors first to discuss your situation, leave your response and details below and we will get back to you shortly.

 

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How to Transfer my UK Pension to Ireland

 

Following Brexit

As of January 2020, the United Kingdom (UK) had officially left the European Union (EU). With the provision of the withdrawal agreement came the transition period, which will run up until December 31st, 2020 allowing UK citizens and business to remain as part of the EU’s rules, regulations and trading arrangements.
 
This will give businesses on both sides time to adjust for upcoming changes. The transition period will end on the 1st of January 2020, changing the conditions of policy and trade outcomes and will highly depend on negotiations held between the UK and EU during the transition period.
 
Despite of the many uncertainties involving Brexit, UK Pensions seems to be a more stable matter. The governments of Ireland and Britain have guaranteed the continued payment of state pensions, child benefit and other social welfare payments in the event of the UK crashing out of the EU without a deal.

UK State Pensions

UK Pension Claimants

Ireland leads the number of UK pension Claimants. Source BBC – DWP Figures for August 2019

 

As demonstrated by the graph above, Ireland ranks 1st on European Countries pension claims. With the possibility of a no deal scenario, it is natural that many financial concerns arise with regards to UK pensions.
 
Essentially, this article will target the impact Brexit will have on UK pensioners living in Ireland. Would their Pensions enjoy the same entitlements? What is the right way to transfer UK’s pensions to Ireland?


Uprating

If you live in the UK, your state pension is uprated every year in line with the triple lock, which means it rises by whichever is highest of average earnings, inflation or 2.5%.
 
As regards to uprating, Ireland and Britain Governments agreed that you will continue to get your UK State Pension uprated if you move to Ireland and you are a UK or Irish national, even after the Withdrawal Agreement deadline.

You will be able to claim and continue to receive UK benefits in Ireland if you are an UK or Irish national, as long as you continue to meet the qualifying conditions.

 

State Pension Eligibility

UK State Pension eligibility could also incur some material change. When the UK was part of the EU, the process of claiming retirement for people that worked in different European countries was simple and done by a single claim.
 
For instance, if someone had worked for 10 years in the UK, other than having worked in different EU countries, when they were eligible to retire, they could apply for their state pension in the last country where they lived or worked, and the single claim would then be coordinated by that country’s authorities.
 
You are currently also entitled use period work in other EU countries to count towards your 10 year minimum threshold to claim for a UK pension (it is worth noting that you would only be paid based on the contributions made when you were working in the UK).
 
The withdrawal agreement keeps that coordination going for those living in Europe until the end of 2020, however it will depend on negotiations on the future relationship between the EU and the UK.


UK Pension Transfer

 

How can I transfer my UK Pension to Ireland?

 

Most Irish residents under the age of 70 are also eligible to transfer their pensions, with a few restrictions.

 

If you have worked in the UK some time during your career you would have probably built up a Pension pot. If you are planning to move back to Ireland, or if you have already done so, you can move/transfer your UK Pension to Ireland by way of a Qualified Recognised Overseas Pension Scheme (QROPS) Buy Out Bond. This would give you more control over your investment options, both now and when you retire.

 
That is the ideal option in most cases, as it is more convenient to have your pension in your country and in your exchange rate. In addition, having your pension abroad can increase bureaucracy in future operations such as Inheritance Planning.

 

*If the scheme to which you are considering transferring your pension savings is not a QROPS, your UK pension scheme may refuse to make the transfer, or you may have to pay at least 40% tax on the transfer.

 

QROPS

 

A Qualifying Recognized Overseas Pension Scheme (QROPS) is a pension scheme that is allowed to receive a transfer of UK pension benefits free of tax.
 
QROPS offers a retirement opportunity whether you are an Irish national that had paid into a pension in the UK and is now planning to transfer your pension to Ireland, or a UK national concerned about the effects of Brexit on your pension and want to safeguard your personal retirement savings against the increasingly restrictive UK pensions regime.
 
A QROPS offers flexibility and significant taxation and investment advantages, allowing UK pension holders to still be able to invest in them.

 

What are the benefits?

 

  1. Control Greater control over your pension investment.
  2. Tax – A QROPS can accept pension transfers from the UK without potentially triggering a tax charge.
  3. Convenience It is easier if you are planning to retire back home in Ireland. If you leave your pension benefits in the UK, you will have to submit an annual tax return in Ireland in retirement declaring your income from the UK. Transferring your pension to Ireland would also allow you to work with a Financial Advisor familiar with the Irish market.
  4. Inheritance Planning If the beneficiaries of your Will or your dependents are not living in the UK, leaving your pension there may be more complicated to deal with in the event of your death, making more sense to transfer your pension to Ireland.
  5. Standard Fund Threshold Any pension savings you transfer to a QROPS in Ireland does not count towards the €2 million Standard Fund Threshold (which is the maximum pension amount you can save for in Ireland without heavy tax charges). The SFT only takes into consideration pension savings in relation to Irish earnings.

 

How does QROPS affect my Tax Free Lump Sum?

 

  1. The tax free lump sum you claim from your QROPS forms part of your lifetime limit in Ireland.
  2. It will be included in your €200,000 tax free lump sum limit (and optional €300,000 taxable lump sum taxed at the standard rate of tax).
  3. If your total pension fund at retirement exceeds €800,000 (between your UK & Irish pensions), the excess in the lump sum over €200,000 would be taxed in Ireland at 20%, where it could be tax free in the UK.

 

Considerations before transferring your UK Pension to Ireland

 

Tax charges on Transfer:

First off, make sure to transfer your pension to a scheme that’s been registered with HMRC as a QROPS. Otherwise, it could result in UK tax charges of up to 55% of the amount transferred.

 

Pension Age:

The minimum retirement age on a QROPS is 55. You can only access your benefits before age 55 on the grounds of ill health.

 

Tax Residency:

If you have been a resident in the UK anytime within the last 5/10 UK tax years, you may be liable to UK tax on your QROPS at retirement.

 

Accessing your Pension:

For all transfers received into a QROPS, benefits can be paid if you;

  1. Are age 55 and over and,
  2. Have not been a UK tax resident for at least 10 UK tax years.

 

Overseas Transfer Charge:

There is a 25% overseas transfer charge on a QROPS unless the transfer is:

  1. To your employers occupational pension scheme, or
  2. To your country of residence, or
  3. Within the European Economic Area

 

Pension Limits:

There are limits in both the UK and Ireland as to how much you can save into a pension, outside of which you maybe liable to tax. In the UK this is referred to as the Lifetime Allowance. In Ireland, it is referred to as the Standard Fund Threshold.

 

It would be worth assessing the value of your pension with the Lifetime Allowance in mind.

 

Options at Retirement:

You can check with your UK provider on what type of pension you have and how you can access your money at retirement from that scheme.

 

 

It is safe to say that despite the few uncertainties regarding your UK Pension, there are already some options in place for Irish residents to avoid losing their well-earned benefits and, while it is a more complex process, we can help take the burden off your shoulders.

 

Smart Pension Advisors

The Transfer Process

Our Financial Advisors can facilitate QROPS transfers to bring your UK pension benefits back to Ireland (with an Irish registered life company) and into your own name. 

 

  • Step 1:

  • Talk with our Financial Advisors to discuss your options and to make sure it is the right decision for you. We will  will complete the relevant paperwork with you for the QROPS Buy Out Bond, and ensure there will not be any UK tax implications.
  • Step 2:

  • Request the transfer options form from your UK provider that includes the option to transfer overseas.
  • Step 3:

  • These transfer options need to be signed and processed by the trustees of the UK scheme.
  • Step 4:

  • The agreed upon Irish Pension provider will receive the transfer from the UK, convert it to Euro for you, and ensure your QROPS Buy Out Bond is set up. The Pension will now be in your name and in your control.

 

 

 

I want to transfer my UK pension to Ireland

What’s the next step?

Fill out your details and enquiry below, and one of our Qualified Financial Advisors will get back to you shortly.

 

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