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 most suitable pension option for your own particular circumstances.
Exiting an Occupational Pension Scheme
When leaving an Employer Pension Scheme, prior to retirement, you generally have three main options depending on the circumstances:
- Leave your benefits in your existing pension arrangement
- Transfer your benefits to a new pension plan
- Take 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 (normally meaning two years as a member for pension purposes), one option is to leave your benefit in the scheme until retirement (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 usually remain invested in line with your existing fund choice or scheme default strategy.
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, along with investment performance.
Defined Benefit Schemes:
For DB schemes, the employee’s entitlement will be based on the scheme rules, typically reflecting final pensionable salary and pensionable 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 joins a company pension scheme with a new employer, 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 generally reflect those that were available under the original 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 involves a formal comparison and can add cost and complexity to the process.
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 depends on the type of pension arrangement and the scheme rules.
If you have less than two years of qualifying service when you leave employment, the scheme may offer a refund of your own contributions (less tax). In most cases, employer contributions are not included in the refund.
Some schemes may permit you to leave your contributions in the scheme or transfer them elsewhere, even where a refund option exists.
Additional voluntary contributions are treated in the same way as main scheme benefits.
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 carefully consider leaving your benefits in the scheme, as this removes investment risk and preserves guaranteed benefits.
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 this may be worth considering, provided that the scheme charges are competitive and you are satisfied with the investment options available.
Alternatively, to take more control of both charges and investment options, a transfer to a PRB or single premium PRSA can be a suitable option depending on your circumstances.
As a result of the Finance Act 2021, the requirement to have less than 15 years’ scheme service when transferring from an Occupational Pension Scheme to a PRSA has been removed, making both the PRB and PRSA transfer options broadly accessible.
In practice, a PRB is often simpler to arrange and generally preserves the original DC scheme retirement options.
If choosing to transfer benefits, ensure that you receive a clear and transparent outline of all charges, including the Annual Management Charge (AMC) and any underlying fund costs.
The larger the fund transfer, the lower the AMC may be, depending on the provider.
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
