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Transferring an Employer Pension to a Personal Retirement Bond

Transferring an Employer Pension to a Personal Retirement Bond

 

When an employee in Ireland changes jobs, they are often faced with important financial decisions, particularly concerning their existing employer pension scheme. The most common type of pension is know as a Defined Contribution pension, where both you and your employer contribute to it. The other is the Defined Benefit pension that provides a fixed amount upon retirement. This is usually more complicated to transfer, especially if you’ve been with the provider for a long time and there is a potential to lose built-up benefits by transferring it

 

One viable option is to transfer the pension to a Personal Retirement Bond (PRB), also known as a Buyout Bond. We will explore the benefits and drawbacks of transferring an employer’s pension scheme to a PRB, compared to transferring the pension to a new employer’s scheme, while detailing the leaving service options letter and the pension transfer process. Additionally, we will discuss the advantages of using a broker for this transfer. 

 

 

Transferring to a Personal Retirement Bond

 

Pros:

 

1. Control and Flexibility: As an employee, a PRB allows you to have greater control over your retirement funds. You can choose from a variety of investment options, tailoring your portfolio to match your risk tolerance and financial goals.

2. Simplification and Consolidation: If you have multiple pensions from different employers, you can consolidate them into a single PRB, simplifying the management of your retirement savings and potentially reducing administrative fees.

3. Portability: Unlike employer-sponsored pension schemes, a PRB is not tied to a specific employer, offering portability that is advantageous as one moves through different jobs and career stages.

4. Fee Transparency: PRBs often have clear and transparent fee structures, making it easier for you to understand and manage the costs associated with your investments.

5. Potential for Better Performance: You can select a PRB with a robust investment strategy, potentially achieving better returns compared to your old employer pension scheme, which may have limited investment options.

 

Cons:

 

1. Loss of Employer Contributions: Transferring to a PRB may result in the loss of ongoing employer contributions that could be available if the pension remained with the employer’s scheme.

2. Transfer Costs: Transferring a pension can incur costs, including exit fees from the current scheme and entry fees for the PRB. It’s essential to evaluate these costs with a financial advisor to ensure the transfer is financially beneficial.

3. Tax Implications: There can be tax implications associated with transferring pensions. Employees should understand these to avoid unexpected liabilities.

 

 

 

Transferring to a New Employer’s Pension Scheme

 

Transferring a pension to a new employer’s scheme is another option. Here are some pros and cons of this alternative:

 

Pros:

 

1. Continued Employer Contributions: Transferring to a new employer’s scheme ensures continued receipt of employer contributions, enhancing retirement savings.

2. Potential for Employer-Matched Contributions: Some employers offer matching contributions, which can significantly boost retirement savings.

 

Cons:

 

1. Limited Control: Although keeping the pension within an employer-sponsored scheme simplifies management, employees may have limited contact by the pension trustess and control over investment choices compared to a PRB.

2. Lack of Portability: The pension remains tied to the employer, making future job changes more complicated.

3. Continued Higher Fees: Employer schemes can have higher fees and less transparent fee structures compared to PRBs.

 

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Can I transfer my employer pension to a PRSA in Ireland?

 

Yes, in Ireland, you can also transfer your company pension to a Personal Retirement Savings Account (PRSA). While transferring a previous private pension or an existing PRSA into a new PRSA is relatively straightforward, moving benefits from a previous company pension scheme is more complex. You can transfer your existing benefits from a company pension only if you have been a member of the scheme for less than 15 years and are transferring because the scheme is winding up or you have left that employment.

 

However, if you have made Additional Voluntary Contributions (AVCs) to an occupational pension scheme, these can be transferred to a PRSA regardless of how long you have held the pension.

 

  1. A PRSA is a contract between you and a PRSA provider (typically an insurance company).
  2. It offers flexibility and portability, allowing you to continue contributing to your pension regardless of employment changes.
  3. PRSAs have standardized charges and offer a wide range of investment funds.

 

 

Should I Transfer my Pension to a PRB or PRSA?

 

Transferring your pension to a PRB can be a more valuable option for several reasons, including:

 

Control and Flexibility:

 

Investment Choice: PRBs typically offer a broader range of investment options compared to PRSAs. This can be beneficial if you have specific investment preferences or strategies.

Control Over Timing: PRBs often provide more flexibility regarding when you can access your pension benefits. You may have the option to take benefits earlier compared to PRSAs, depending on the terms of the PRB and your personal circumstances.

 

Cost:

 

Charges and Fees: PRBs might have lower charges and fees compared to PRSAs, particularly if the PRB is established with an insurer or investment provider that offers competitive rates. Lower fees can also have a significant impact on the growth of your pension fund over time.

 

Retirement Benefits:

 

Lump Sum Options: PRBs allow for a tax-free lump sum on retirement, that is up to 25% of the fund value, subject to certain limits. This lump sum can be more substantial compared to what is typically available under a PRSA.

Annuity Purchase: With a PRB, you may have more favorable options for purchasing an annuity upon retirement, depending on market conditions and the specific terms of the bond.

 

Legacy Benefits:

 

Death Benefits: PRBs can offer more advantageous death benefit options. For instance, if you pass away before retirement, the value of the PRB can be paid out to your estate or beneficiaries as a lump sum, which may not be as straightforward with a PRSA.

 

Simpler Administration:

 

Single Policy: A PRB is typically a single policy, making it easier to manage compared to multiple PRSAs, which might be necessary if you have various pension entitlements from different employers.

 

Specific Situations:

 

Previous Employment Pension: As mentioned above, PRBs are often more suitable for transferring benefits from a previous employer’s pension scheme. They can preserve the benefits accrued in a company pension scheme without needing to integrate with new contributions, which is typically the case with PRSAs.

 

It’s important to note that the best choice depends on individual circumstances, including your retirement goals, investment preferences, and financial situation. Consulting with a financial advisor who understands the nuances of Irish pension regulations can help you make an informed decision tailored to your specific needs.

 

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The Leaving Service Options Letter

 

When leaving a job as an employee, you should receive a leaving service options letter from your pension scheme administrator. This letter outlines available options regarding your pension benefits, including:

 

  • Preservation: Information about leaving the pension in the current scheme until retirement.
  • Transfer Options: Details on transferring the pension to another scheme or a PRB.
  • Accrued Benefits: An overview of the benefits accrued, including any guaranteed elements.
  • Required Actions: Instructions on steps that you need to take within a specified period to exercise your chosen option.

 

 

 

The Pension Transfer Process

Steps to transfer your pension

 

The process of transferring  your pension from an old employer to a PRB with an Irish insurance provider can involve significant administrative work. We will detail each step below to keeep you informed of the process:

 

 

Step 1: Request Information

You need to know your transfer value, which is the total amount accumulated in your pension pot over your working life. Make sure to request detailed information about your current pension scheme. They should respond with a document detailing your transfer value, accrued benefits, potential transfer costs (exit fees and charges), and technical information needed by the new provider.

 

Step 2: Evaluate Options 

Compare the current scheme with potential PRBs offered by Irish insurance providers, considering factors such as investment options, fees, and performance.

 

Step 3: Select a PRB

Choose a PRB that aligns with long-term retirement goals. You will need to speak with financial advisor or broker who can advise you on this.

 

Step 4: Complete Transfer Forms

Fill out the necessary paperwork to initiate the transfer, including forms from both the existing pension scheme and the chosen PRB provider. The forms will authorize the new provider to contact your current provider to initiate the transfer process.

 

Step 5: Transfer Funds

Once the paperwork is processed, funds are transferred from the old pension scheme to the PRB. This process can take around six weeks, depending on the providers and the timely exchange of information. You remain invested during the transfer period, so pension periods are not lost.

 

Step 6: Confirm Transfer

After the transfer, confirmation will be provided that all funds have been successfully moved and review the new investment strategy.

 

 

 

Benefits of Using a Broker

Benefits of Using a Broker - Transferring an Employer Pension to a Personal Retirement Bond

 

Facilitating the transfer through a broker offers several advantages:

 

  • Expert Guidence: Brokers provide expert advice and help navigate the complexities of pension transfers, ensuring informed decisions.
  • Access to Better Products: Brokers often have access to a wide range of PRB products and can recommend the best options based on individual circumstances and goals.
  • Negotiation of Fees: Brokers can negotiate better terms and lower fees, making the transfer more cost-effective.
  • Ongoing Support: Brokers offer ongoing support and advice, helping you to manage your PRB effectively over time.

 

 

 

Conclusion

 

Transferring an employer pension scheme to a Personal Retirement Bond when changing jobs in Ireland is a significant decision with various advantages and disadvantages. Increased control, flexibility, and potential for better returns make PRBs an attractive option. However, the potential loss of employer contributions, transfer costs, and the need for greater financial management must be considered.

 

Understanding the leaving service options letter and the pension transfer process is crucial for making an informed decision. Using a broker can provide additional benefits, ensuring a smooth and beneficial transition to a PRB, ultimately contributing to a secure and prosperous retirement.

 

 

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What happens to my pension when I change jobs?

 

We frequently come across this question: “What happens to my pension when I change jobs?” 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 a Financial Advisor to review your current financial situation and circumstances that may have potentially changed.

 

 

Leaving Service Options:

 

It’s important to note that your pension is managed by the trustees of the scheme according to the trust deed and rules. Pension schemes in Ireland are usually administrated and serviced by, but not limited to, pension administrators and actuaries such as Aon, Mercer, and Willis Towers Watson. When departing from your company your member 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

 

Although the easiest option, leaving your pension behind is the least recommended particularly because pension schemes may not provide you with annual updates on how your pension is being managed or invested, particularly if you have changed address. 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.

 

So if you are considering leaving your currently employer, ask yourself the following questions:

 

Are the charges fair and transparent?

Is the pension provider responsive?

Has my pension performed to my satisfaction?

 

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. Your retirement options are subject to the scheme rules (including early retirement).
  2. Bigger schemes have limited Investment options since they cater for large groups of employees (your investment could under-perform).
  3. Another negative is that there is no access to financial advice after you have left the company. When moving jobs, you run the risk of forgetting about the plan and losing contact with it over time.
  4. More importantly, 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.

 

Pros:

  1. The primary advantage here is that it enables you to consolidate your pension, allowing you to maintain 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 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 the new scheme.
  3. You miss the opportunity to move the fund into your own name.
  4. You can greatly diminish the amount of tax free cash that you receive on retirement.
  5. It can also stop you from accessing benefits at age 50.

 

 

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 advice and 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 may be more competitive than company pensions).

 

Pros:

  1. On the upside, this option gives you full control over your pension and investment decisions, as the fund is owned by you personally.
  2. A Financial Advisor can put together a tailored investment strategy, based on your attitude to risk, 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. As stated above, annual management charges can be higher depending on the funds/assets classes chosen.

 

 

What do we recommend?

 

In most cases, the Personal Retirement Bond is the most practical route, as 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.

 

Obviously everyone’s financial position is different and it’s important that you sit down with a financial advisor to make sure that you’ve gone over all of the pros and cons according to your own personal circumstances.

 

Our Financial Advisors can help determine which option is right for you, and help guide you through the pension transfer process to ensure that your funds are set up correctly, managed effectively, and monitored continuously!

 

 

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, you will need 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.

 

Letter of Authority:

Contact us for Financial Advice

 

In order for our Financial Advisors to review your pension benefits and advise you on your options, complete the below form (using the “download” link) and send this to info@smartfinancial.ie.

 

 

 

 

 

In addition, make sure to submit your enquiry in the field below…

 

 

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