Employer Pension Obligations

Kevo

Hi,
I am currently emplyed by an Irish university and there is a mandatory pension contribution each month. This is great but unfortunately, as I don't plan on staying for two years, I won't qualify for the pension scheme and will receive a lump sum of all my pension contributions minus tax. I would prefer to keep the tax benefits of saving this money for a pension and instead transfer it to a private pension. My employer has said that this is not possible and I will have not choice but to pay the tax and receive a lump sum.

My question is about the legality of this. My understanding is that an employer has to provide the option of a pension, but I was obliged to pay into a pension which I would never qualify for under the terms of my contract (it's a 1 year contract and the minimum time to qualify is 2 years).

Any advice is much apprecicated.
Thanks,
Kevin

coylemj

The reason they want to give you back your contributions less tax is because it lets them claw back the employer contributions. If they consented to transferring your fund to your own personal fund (e.g. a PRSA) or to the DC pension fund of your next employer, they would have to wave goodbye to the contributions they made to the scheme on your behalf.

It's standard practice in virtually all pension schemes that you only accrue benefits after a certain number of years. In the public service it used to be five years, not sure if that's changed in recent years. I worked for a company with a non-contributory defined benefit pension scheme but if you left before ten years service, you got nothing - no refunds, no preserved benefits! In the case of your employer, the rules about refunds for leavers will be written into the pension scheme and as you say it's a university, you can be sure they employed proper pension consultants to set the scheme up so I'd say you don't have much choice in the matter. It's probably also fair to point out that those rules were in place when you took up the contract so not much point in looking to change them now.

BazzaDP

That's fairly standard.

Do a google for "Preservation and Transfer of Benefits" and you'll find a citizens.ie page (I can't post URLs unfortunately but it's here: citizensinformation.ie/en/money_and_tax/personal_finance/pensions/occupational_pensions.html#l1f4da ).

Used to be 5 years, now 2 years. Note also it's 2 years from when you join the pension scheme (which is often 6 months after you start employment) and not 2 years from when you start employment.

Carawaystick

You can usually transfer your savings into another pension scheme, instead of taking the refund. If you are paying tax at the marginal rate, you can take the refund, pay 20% and invest in a new pension and get tax relief at the marginal rate.

SBarrett

Kevo wrote: »

Hi,
I am currently emplyed by an Irish university and there is a mandatory pension contribution each month. This is great but unfortunately, as I don't plan on staying for two years, I won't qualify for the pension scheme and will receive a lump sum of all my pension contributions minus tax. I would prefer to keep the tax benefits of saving this money for a pension and instead transfer it to a private pension. My employer has said that this is not possible and I will have not choice but to pay the tax and receive a lump sum.

My question is about the legality of this. My understanding is that an employer has to provide the option of a pension, but I was obliged to pay into a pension which I would never qualify for under the terms of my contract (it's a 1 year contract and the minimum time to qualify is 2 years).

Any advice is much apprecicated.
Thanks,
Kevin

Hi Kevin

Under legislation, you have to be a member of a pension scheme for 2 years to be entitled to the employers contributions (it used to be 5 but that changed about 15 years ago). As you will not be there for the required 2 years, you won't be entitled to the employer contributions.

The only time I came across the employer not allowing an employee transfer out their own contributions was with defined benefit schemes. I am not aware of anything in pension legislation that prevents you from taking a transfer value.

Ask them to show you where it says you cannot take a transfer value of your own contributions.


Steven

Kevo

Thanks for the advice. It seems that there is little I can do.

As suggested I will put some money in a private pension and claim the tax relief before then end of the year.
Thanks,
Kevin

SBarrett

Kevo wrote: »

Thanks for the advice. It seems that there is little I can do.

As suggested I will put some money in a private pension and claim the tax relief before then end of the year.
Thanks,
Kevin

As you are a member of an occupational pension scheme, any contributions must be into that plan by way of AVC's. You may put it into a PRSA AVC or the main scheme AVC scheme.

If you put it in an ordinary personal pension plan or PRSA, the Revenue may refuse your application for tax relief.


Steven