Pension Benefits with Ex EmployersEoin Buckley
It is important for you to take control of any dormant pension funds still managed by ex-employers. The first item on your action plan is to ask your ex employer to send on your updated leaving service options statement. This will detail how much your pension is currently worth and will outline all of your options, one of which will detail your option to move your pension monies from your ex employer’s scheme to your personally owned buyout bond pension policy.
Some of the benefits for you in moving your defined contribution pension monies from your ex employer’s pension scheme to your personally owned pension buyout bond may include;
- Proactivity. Moving your monies to your personally owned buyout bond (BOB) breaks the link with your former employer. By having a BOB, you never have to deal with your old employer again. If you leave your fund with an old employer, you will eventually have to return at some future point to get the trustees to sign paperwork when you want to retire.
- Investment Choice & Control. The buyout bond is in your name as opposed to being part of a greater company scheme. You can now choose the life company and funds to invest in. Company pension trustees no longer decide what you may or may not invest in. Company pension trustees have nothing to do with your pension pot after it is transferred to a BOB.
- Privacy. Your new/current employer will not know about this particular pension pot of monies whereas they would know if you chose to transfer your monies from your former employer to your new/current employer’s occupational pension scheme.
- Benefits on death (versus transferring to a new employer’s occupational pension scheme). The legislative rules of an occupational pension scheme dictate that the maximum tax-free lump sum that can be paid out, with regard to an active pension scheme member, is four times gross annual salary plus the value of employee contributions, with reasonable interest. In most cases, Buyout Bonds (& PRSAs) provide a far more favourable outcome as the full fund value amount is paid tax free to your estate, should you die before drawing down your benefits (i.e. death pre-retirement).
- Set up costs. As you wish to sever the link with your ex-employer’s scheme, those with less than 15 years’ scheme service may have the option of transferring to a PRSA. However, where an ex-employer’s occupational pension scheme is not being wound up, a transfer to a PRSA would require a ‘Certificate of Benefit Comparison’ report to be produced by a person carrying relevant professional indemnity cover for at least €1M. A buyout bond does not have such a requirement. You can avoid the cost of a certificate of comparison report and sever the link with your ex-employer’s pension scheme by choosing a buyout bond.
- Choices at retirement. Another distinctive benefit of a buyout bond over a PRSA is that you retain the option to choose between two tax free lump sum calculation options at retirement.
- Flexibility & early access. You can access your BOB funds from age 50 onwards. You do not need to retire/leave your employment at that future date in order to access your BOB and this makes your choice of a BOB advantageous as this is not the case with a PRSA.
As always, specific advice on your options is a must.
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