What to do with pensions from previous employment?

Stroke Politics

Happy New Year to all.

I am looking for some advice, not sure this is the place, but if anyone can point me in the right direction, I'd be very grateful.

I spent 17 years in the private sector, worked for 7 yrs in one bank, 9 in another bank, and travelled for a year in between. I quit my second job to move into the public sector, and have been very happy as a teacher for the last 5 years, got made permanent this year, and pay pension contributions every fortnight for a pro-rata pension that I hope to draw when I finish teaching in 25 years time or so.

My query is what to do with the two pensions that I have already paid into, and have not done anything with them since I left these employers 15 and 5 years ago, respectively.

I undertand from talking to the two companies pensions offices that I have a total combined pension fund of around €50K, and I want to take these funds out and invest them in a private pension fund elsewhere. Can I do this? What other options are there out there such as buy-out bonds? I am concerned that these funds will be lost when it comes to drawing them down, as both jobs were with banks who are still in operation, so I have decided that I need to do something about them this coming year. I am not panicking about this, but I feel it is time to do something about this little nest egg.....

3DataModem

If you have "defined benefit" pensions from previous employment, be very hesitant to take a transfer value now.

Stroke Politics

3DataModem wrote: »

If you have "defined benefit" pensions from previous employment, be very hesitant to take a transfer value now.

The combined defined benefit is about €1800 p.a.. My worry is that one or both of the pension funds will be wound up if these banks go belly-up before I get to 63, hence the reason I want to exit the funds.....

_Kaiser_

I'm in much the same boat actually.

Have a pension from 7 years in a US multinational plus another 4 from the public sector job I took afterwards.

I presume these are still lying idle somewhere. I'm now approaching the point in my current job where I'm eligible for their pension scheme - although if you read the Irish Economy forum, you'd have to question if it's worth having ANY private pension these days with the government's recent fondness for dipping its hand in.

What's my next step?

Paraic

Yes you have the option to transfer to a Personal Retirement bond.
A personal retirement bond lets you take previous pension entitlements with you when changing jobs. You can choose the fund that your money is invested in and choose when to take your benefits and any investment growth is tax-free.

A Financial Broker will be able to assist you in drawing them down and transferring them to a personal retirement bond.

Liam D Ferguson

If you have funds in a pension scheme from a previous employment, you have several options. Not all of them will suit everyone, but they should be examined.


Early retirement
If you're over 50, you can take early retirement now. The term "early retirement" in this context only refers to the pension scheme monies - it doesn't matter if you're still working in another job. Or you may be able to draw the lump sum from the pension scheme now and defer taking the rest of your benefits until later, depending on the rules and type of scheme it was.


Defined Benefit (DB) schemes
If the existing scheme is a Defined Benefit (DB) scheme, offering a guaranteed pension at retirement, you need to think carefully before making a decision to transfer your fund out of it. One the one hand, by transferring out you are giving up the valuable guarantees forever. On the other hand, if the scheme itself is, or becomes insolvent in the future and is wound up, the guarantees will not be honoured anyway and you may get a much lower value later. Try to get an idea of the current solvency position of the scheme and the willingness of the employer to continue to fund it.


Leave it Where it Is - Deferred Benefit
Unless the pension scheme is being wound up, you can choose to leave your fund in the scheme – sometimes known as a “deferred benefit”. If it’s a Defined Contribution (DC) scheme, it will continue to be invested as before. If it’s a large scheme, the charges on the funds may be lower than what you can arrange yourself as an individual. Find out what the charges are and what the fund choices are. You will need to make sure you always know how to contact the scheme trustees, now and in the future, as they are required to sign off on any transactions on your fund, up to and including retirement. The scheme trustees also have the right to move the funds from one provider to another without your consent.


Transfer to a PRSA
If you have less than 15 years' service, you can transfer into a PRSA. If the value of the fund is greater than €10,000, you will need to pay for a Certificate of Benefits Comparison to be drawn up by an actuary before you can transfer the fund into a PRSA, unless the pension scheme is being wound up. Such a certificate can cost around 1% of the fund value, with a minimum of €500.


Transfer to a Buy-Out Bond
You can transfer into a Buy-Out Bond (a.k.a. Personal Retirement Bond). There are pros and cons of PRSA vs Buy-Out Bond, mainly around when and how you can take your retirement benefits. A Buy-Out Bond offers you the exact same retirement options as the original pension scheme. You can “retire” a Buy-Out Bond from age 50 onwards, regardless of your employment status at that time. You can only retire a PRSA before 60 if you are retiring from PAYE employment at that time. There’s one exception - In the event of serious ill-health, you can retire either a Buy-Out Bond or PRSA at any time.


If appropriate, you can make additional contributions to a PRSA from future earnings. You can’t do that with a Buy-Out Bond.


Transfer to Current Employer's Pension Scheme
If you’re currently in an Occupational Pension Scheme in your current employment, you can transfer your fund into it. Before deciding to do this, find out the charges and fund choices on the old scheme, the charges and fund choices on the new scheme and compare them. Compare also the charges and fund choices on the new scheme with those available on a Buy-Out Bond or a PRSA.


If you transfer your fund from an old scheme into a new scheme, you are giving up your option to “retire” the two funds at two different times and instead are rolling them all into the new scheme.


Refunds of Contributions

If you have less than two years’ service in a scheme when you leave, you may be offered the option of taking a refund of the value of your own contributions, less tax. This is not always to your benefit as the employer also gets a refund of the value of their contributions. If you transfer your fund from an old scheme into a new scheme, your service in the two schemes is added together for the purpose of calculating whether or not you would be entitled to a refund of the value of your contributions. Example – you spent 18 months in a previous scheme and then transfer your fund into a new scheme of your new employer. If you spend longer than 6 months in the new scheme and then leave you will not have the option to take a refund of contributions, as your combined service is greater than 2 years.


What Investment Funds?
Whether you choose a PRSA or a Buy-Out Bond, it is important to choose an investment that suits your requirements. There are a huge range of pension funds and choices available out there. As a starting point you and your advisor need to work out your risk tolerance (what level of risk would you be comfortable with) and your risk capacity (what level of risk can you afford to take). After that, there are a wide range of funds to choose from, to suit all risk profiles, from low-risk cash funds, fixed and variable rate deposits, through bond funds, commodity funds, equity funds, property funds, absolute return funds, mixes of all these and more. It's also possible to set up self-directed Buy-Out Bonds and PRSAs that will allow you to choose your own shares, ETFs, deposits or even property to buy using your pension funds. Only some of these will be suitable for any given individual, but you can't make an informed decision until you know what the choices are.


Be Aware of Charges

Charges can vary from one product provider to the next and also from one Financial Broker to the next - they are not standardised. Make sure you are aware of what the charges are - both up-front and ongoing as they can have quite an impact on your fund over time. Ask for your advisor to explain the charges to you in Euros and cents and/or simple terms, not jargon. A good advisor is there to help you understand what you're investing in, not blind you with science and gobbledygook.

Stroke Politics

Thanks for the comprehensive reply, lots of options there so!

I would like to keep the previous DB fund separate from my current employers pension fund, as I am a teacher and hope to keep on teaching as long as I can, maybe with redced hours after I'm 60. I want to consolidate the two previous, private sector schemes, as I reckon there is a strong chance of one or both of them being wound up before the date that I an entitled to draw them down.

I had not considered the PRSA option, what's the tax relief like on contributions....?

Liam D Ferguson

Stroke Politics wrote: »

I had not considered the PRSA option, what's the tax relief like on contributions....?

As you're already part of a public service pension scheme as a teacher, you are limited in your scope to make further contributions. You can either look into buying back years in the public service scheme or contributing Additional Voluntary Contributions (AVCs) to improve your retirement benefits. You can arrange AVCs through whatever broker your union has appointed, or you can set up an AVC PRSA yourself that you can get from pretty much any Financial Broker or pension company.

bb86

Can I ask a quick question .... I left my old job and had less than 2 yrs done and had a pension. The pension guy rang me 2 wks ago and is refunding me my pension - Just wondering does anyone know how long this process takes or should I just expect a cheque in the post or what's involved?! Thanks a mil!

Liam D Ferguson

bb86 wrote: »

Can I ask a quick question .... I left my old job and had less than 2 yrs done and had a pension. The pension guy rang me 2 wks ago and is refunding me my pension - Just wondering does anyone know how long this process takes or should I just expect a cheque in the post or what's involved?! Thanks a mil!

If the refund is voluntary (i.e. you had a choice about whether or not you wanted a refund) there would usually be a form for you to sign. The refund would also need to be signed by the scheme trustee. Once those signatures had been sent in to the pension company, it should only take a week or two to disinvest the funds and write a cheque.

If the refund is compulsory, your signature would not be required - just the trustee's.

The actual processing should only take a week or two, but sometimes getting the right person to sign the form as trustee can cause a delay. Often the trustee is also a director of the employer so signing and returning pension forms might not be a top priority.

Give the pension guy a ring - he should be able to update you where it's at.

bb86

Liam D Ferguson wrote: »

If the refund is voluntary (i.e. you had a choice about whether or not you wanted a refund) there would usually be a form for you to sign. The refund would also need to be signed by the scheme trustee. Once those signatures had been sent in to the pension company, it should only take a week or two to disinvest the funds and write a cheque.

If the refund is compulsory, your signature would not be required - just the trustee's.

The actual processing should only take a week or two, but sometimes getting the right person to sign the form as trustee can cause a delay. Often the trustee is also a director of the employer so signing and returning pension forms might not be a top priority.

Give the pension guy a ring - he should be able to update you where it's at.

Great thanks a mil for that info! Ya it's voluntary so will prob take longer than usual but that's grand I'll give him a ring tomor. Thanks again for your help.