When exiting an employer’s Occupational Pension Scheme to take up another job, or if becoming self-employed, important considerations arise regarding your pension scheme benefits. This is a guide to help you in choosing the best pension option for your own particular circumstance.
Exiting an Occupational Pension Scheme
When leaving an Employer Pension Scheme, prior to retirement, you have three main options depending on the circumstances:
- Leave your benefits in your existing pension arrangement.
- Transferring your benefits to a new pension plan.
- Taking a refund of contributions in limited circumstances.
1. Leaving Benefits Preserved
Membership of an occupational pension scheme ceases when you leave that employment. If you have more than two years’ qualifying service, which normally means two years in the scheme as a member for pension purposes, one option is to leave your benefit in the scheme, until you retire (known as a deferred or preserved benefit).
Assuming the company pension scheme is not being wound up, doing so will mean that your pension pot will continue to be invested, but usually in a default fund.
Defined Contribution Schemes:
For DC Schemes the preserved benefit will be based on the value of the contributions paid to the scheme by the employee and employer on behalf of that member.
Defined Benefit Schemes:
For DB Schemes the employee’s entitlement will be based on the scheme rules, but with benefits relating to both final pensionable salary and pension scheme service.
2. Transferring Benefits
Benefits from an occupational pension scheme can be transferred to another occupational pension scheme, a PRSA, a buy-out bond (or personal retirement bond) with an insurance company, or an overseas pension arrangement.
A. Transfer to a New Employer’s Company Pension Scheme
If the employee has joined a company pension scheme with a new employer, then they may have the option to transfer their benefits from their previous employer to the new scheme.
B. Transfer to a Personal Retirement Bond (PRB):
The value of the company pension may be transferred to a PRB in the employee’s own name.
The options available at retirement will be the options that were available under the company pension scheme.
C. Transfer to a PRSA
The value of the company pension may be transferred to a PRSA. A Certificate of Comparison will be required where the transfer value is greater than €10,000, and the pension scheme is not being wound up. This can be costly.
3. Taking a Refund
In certain circumstances, you may be eligible to take a refund of contributions paid into a pension arrangement.
Your entitlement to a refund of contributions depends on the type of pension arrangement you have and the rules attached to refunds of contributions.
If you are a member of a pension scheme, you may be obliged, if you have less than two years of qualifying service (broadly service as a member of the scheme) when you leave service to take a refund of the value of your own contributions less tax at the basic rate.
Some schemes may permit you to leave your contributions in the scheme, even though they are not required to do so by law. Additional voluntary contributions are treated in the same way as main scheme benefits. Even if you are not obliged to take a refund of contributions and you have less than two years of qualifying service, you may still choose to do so.
General Advice – Occupational Pension Scheme Exit
For anyone with more than 2 years of scheme service, where your Occupational Pension Scheme was a Defined Benefit arrangement (DB) you should generally opt to leave your benefits as it removes investment risk.
If your employer scheme was Defined Contribution (DC) and you have the option to join another Occupational Pension Scheme and transfer your benefits across, then you should consider this provided that the scheme charges are competitive, and you are happy with the investment options made available.
Alternatively, to take more control of both charges and investment options a transfer to a PRB or single premium PRSA, tends to be the preferred and best route for most.
As a result of the Finance Act 2021, the requirement to have less than 15 years’ scheme service on transferring from an Occupational Pension Scheme to a PRSA has been removed, so both the PRB and PRSA transfer options are similar, although a PRB is easier to arrange, and ensures that all your original DC scheme retirement options are retained come retirement.
If choosing to take a transfer of benefits, make sure that you get a clear and transparent outline of the Annual Management Charge (AMC) and achieve 100% investment allocation.
The larger the fund transfer the lower the AMC, with our base AMC charges starting at 0.50% PA, whilst offering from a broad range of providers and fund managers.
Personal Consultation
If you would like to explore the best and most cost-effective pension transfer option for you, please contact me without obligation.
Contact: Ken O’Gorman – Director – QFA, SIA, MCIBS – Pension & Investment Specialist
One Quote Financial Brokers on 01 845 0049 or email: ken@onequote.ie
