Learn How To:
- Locate your previous pension
- Request an up to date Pensions Benefit Statement from your previous employer / Pension provider
- Request a transfer Value from your previous employer,
- Assess your options in relation to access, the benefits left to your family on death and the tax implications of the various options available if you get offered an enhanced transfer value.
Enhanced Transfer Values Explained (ETV’s)
Corporations that offer a Defined Benefit Pension to their employees have recently been offering members of their scheme an alternative method of drawing down their pension. A legislation change in June 2016 has allowed this new option to be offered. This option can have some very tangible benefits for both the Company and the member (either a current or deferred member).
Once an employee leaves a pensionable employment, the following 4 options are available in relation to this “paid-up” pension, they are as follows:
- Leave it where it is, in the Previous Company’s Pension Scheme
- Transfer it into your New Employers Pension Scheme
- Transfer it into a Personal Retirement Bond
- Transfer in into a PRSA
These 4 options all have their advantages and disadvantages and there is no definite correct answer for all cases. It is important for you to research your options and choose the best one that suits your circumstances.
In order for you to make the best and informed financial decision in relation to your previous/deferred pension, it is important to consider the following
Is your previous pension Defined Benefit or Defined Contribution?
Since the Legislation changes in June 2016, it is now possible to transfer both types of pensions from your previous employers. Prior to this recipients of defined benefit schemes did not have this transfer option. Many semi state bodies that offer defined benefit pensions to their employees are now offering very lucrative pension packages for people who wish to transfer them of the scheme. These include Eircom, An Post, Intel, Bank of Ireland, AIB to name a few. The main benefit of transferring is early access and a significantly larger Tax free lump sum as well a pension benefits to your family on death.
What is your pension worth at the moment and what is its transfer value?
The best way to find this out is request an up to date Annual benefit statement from your ex employer. They are usually sent out to all once a year in the post. This statement will tell you;
1. How much your pension is worth,
2. What fund it is invested in,
3. The management charges applied to your fund by your ex employers pension fund,
4. The various transfer options mention above. In relation to Defined Benefit pensions schemes, most Annual Benefit statements that are sent out to individuals do not have the new Alternative pension transfer option. The new option has to be specifically requested. (See below). Many HR and Accounts/pension departments within these companies are unaware of this new option, so it is advised that you specifically request this new option. The easiest way to do this is to ask a Qualified financial advisors who specialize in pension transfers to get this information on your behalf from the pension trustees.
What happens to your pension money when you die?
In most cases (especially with Defined Benefit pensions), if you die after you start drawing down your pension, most if not all of your benefits dies with you. If you decide to transfer your deferred pension out of your previous employer scheme, then there are more tangible benefits left to your family upon your death.
Would you like more control over your pension in relation to where it is invested and how it is performing?
Leaving your pension in your previous employer’s scheme can restrict what you can do with your pension money. If you transfer your pension out, you have the a lot more investment choice. Some of these are these investment choices are as follows
- Invest your pension in a standard managed fund of an insurance company of your choice e.g. Aviva, Zurich, Irish Life etc. This can be a low, medium or high risk fund, depending of the level of volatility you are comfortable with,
- Use some or all of your money to invest in the stock market
- Invest in a local startup company with huge growth potential
- Buy property with your pension fund
- Buy a guaranteed income for the rest of your life
Have you recently been divorced or separated from your spouse?
Getting divorced or separated can have significant implications on your pension fund. It is advisable to talk to a financial advisor and/or a solicitor to go through the best option for you in this situation.
Would you like a guaranteed income for the rest of your life?
If your pension is a defined benefit pension and you would like the security of having a guaranteed income for the rest of your days 9 (no matter how long you live), the best decision for for is to leave your pension with your previous employer and not transfer it out.
How financially strong is your ex-employer and is it possible for them to change the pension rules of their scheme?
This point is all speculative but still worth considering. Many pension schemes of very reputable companies have significantly changed the rules of the scheme which can have a very negative effect on ex employee pension values.
For example, Bank of Ireland, AIB and Aer Lingus over the past few years have all changed its pension scheme from defined benefit to defined contribution. This resulted in a significantly reduced package for its employees. Alternatively, if your ex employer gets into financial difficulty and is forced into liquidation, your pension could also be adversely affected. Waterford Crystal is a prime example of this.
If your ex employer has a defined benefit scheme and is underfunded (which many of them are), they have the right to significantly reduce your pension benefits.
Did you take a redundancy package when you left your previous employer?
If you received redundancy in your prior employment, there may be significant implications to your pension tax free lump sum that you are entitled to from that pension.
When can you get access to this pension money?
If you decide to leave your pension in your previous employer scheme or if you transfer it into your new pension scheme, the access is restricted to the Normal Retirement age of that particular scheme. This is usually age 60 or 65. If you transfer your pension into a buyout bond in your own name, you can get access to this money at age 50 onward. If you have a defined benefit pension, you usually can significantly increase your tax free lump sum by transferring.