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Pension Query - advice needed

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  • 09-06-2011 1:38pm
    #1
    panama
    Banned (with Prison Access) Posts: 579 ✭✭✭


    I joined a group pension scheme which took a 5% deduction from my salary
    since the start of 08 up until I was made redundant this year.

    However I believe state law determines that once your pension has been active for over 2 calendar years you are not entitled to reclaim it.

    I was hoping to utilise some of the money I had accumulated in the fund
    but it seems all I can do with it is leave it there and either open a personal
    pension savings fund or join another group scheme if my next employer is part of one.

    Am I correct in the above? In regards to not being able to access these funds or cash them in so to speak? :confused:


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    #2
    theloanarranger
    Closed Accounts Posts: 8 ✭theloanarranger


    You are correct in that you can't usually take the cash out of the pension fund once you have been in it 2 years. The rule used to be 5 years so a lot of people used to take the money back out. However this meant paying income tax on it and it also meant not getting any of the contributions made by the employer.

    In your case the contributions you made qualified for tax relief and your employer also put money in the fund for you. You will get the advantage of that plus the tax-free investment growth at some later stage of your life. This is far more valuable than a reduced and taxed refund of contributions now. I suggest you check with the trustees of the scheme to see if the current transfer value is the same as the curent fund value. If so, then ask what life assurance company funds you are invested in and what are the ongoing charges being made on the fund. If there are more than 1% fund management charges being applied plus perhaps an ongoing monthly policy fee, then it would be worth having a private chat with an independent financial broker. Speak with me if you like or go on to piba.ie and find a broker in your area who deals with pensions.

    The Loan Arranger


  • Options
    #3
    panama
    Banned (with Prison Access) Posts: 579 ✭✭✭panama


    Thanks for the detailed reply.


  • Options
    #4
    Sunnygrl
    Registered Users Posts: 17 ✭Sunnygrl


    theloanarranger wrote: »
    You are correct in that you can't usually take the cash out of the pension fund once you have been in it 2 years. The rule used to be 5 years so a lot of people used to take the money back out. However this meant paying income tax on it and it also meant not getting any of the contributions made by the employer.

    In your case the contributions you made qualified for tax relief and your employer also put money in the fund for you. You will get the advantage of that plus the tax-free investment growth at some later stage of your life. This is far more valuable than a reduced and taxed refund of contributions now. I suggest you check with the trustees of the scheme to see if the current transfer value is the same as the curent fund value. If so, then ask what life assurance company funds you are invested in and what are the ongoing charges being made on the fund. If there are more than 1% fund management charges being applied plus perhaps an ongoing monthly policy fee, then it would be worth having a private chat with an independent financial broker. Speak with me if you like or go on to piba.ie and find a broker in your area who deals with pensions.

    The Loan Arranger

    I know cashing in on your pension is generally a bad idea. I am hoping to use the cash saved to fund studies and can't see how i could be better off having a loan that runs interest while i have the funds to pay lying in a pension fund where it actually just looses value. Surely using that money to invest in a better future is worth more? Is there anyway arranging to have a pension (more than 2 years) cashed in to reduce the need of taking out a loan? Or can you use a pension as a type of assest to guarantee a loan? ( maybe the bank won't mind waiting till i am 60..)


  • Options
    #5
    HowFinancial
    Registered Users Posts: 71 ✭✭HowFinancial


    Once you have been a member of the pension scheme for over 2 years you cannot access to the monies in your retirement fund until you are eligible to draw your retirement benefits.

    Even if you were a member of the scheme for less than 2 years, as outlined above, you will often loose the right to the employers portion of any contributions made, as well as having to pay full income tax on the contributions. You can check this by asking your provider if you automatically have "vested rights" or not. If not, then you could loose employers contributions.

    For example:
    Value:€20,000
    50% employer contributions : 50% employee contributions
    NO vested rights
    You would now be eligible to withdraw €10,000. But PAYE would have to be deducted:
    €10,000 x 41% =€4,100
    or
    €10,000 x 21% =€2,100
    So the option boils down to €20,000 in your pension fund or either €5,900 or €7,900 in your pocket (depending on what rate you received tax relief at).

    Check with your provider if there are vested rights, and what the transfer value is.

    Hope this helps


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