Options with my pension when I leave my job
Pension transfer advice: Most people work for a range of different companies over the course of their career, usually accumulating pension benefits in all of these jobs.
, financial planning manager, Mercer Private Wealth, offers advice on transferring your pension throughout your career.
The days of people staying in the same job for their entire career are largely a thing of the past.
Most people will have multiple jobs, perhaps spanning the public and private sectors, self-employment, or even directorship of a limited company. Some will also work abroad. An individual may accumulate pension benefits in all of these jobs.
The Pensions Act (1990) introduced the concept of a statutory preserved benefit to protect pension scheme members’ entitlement to previous employers’ pension contributions.
Once a member has completed at least two years of qualifying service, they are entitled to the value of the employer’s contribution as well as their own. A member with less than two years of service has the right to a refund of their own contributions only, which will be taxed at the standard rate, currently 20%.
When you have a preserved benefit, your pension scheme administrator must provide you with a leaving service options statement within eight weeks of your leaving date, outlining the choices you have.
You can leave your pension benefits in place, transfer them to another arrangement, or retire if over age 50. If you have a public sector defined benefit (DB) pension, you may not have the option to transfer this from your previous employer.
In this case, your pension benefits become available to you at your normal retirement age, or possibly earlier if the pension scheme rules allow for this. With a private sector DB pension, you can usually transfer the pension, albeit with possibly lower benefits than would be the case had you left it with the original scheme.
If you have a company-sponsored defined contribution (DC) or director’s pension, your choices are broader. One option is to leave the benefits in situ with your previous employer. You can remain invested in the same funds and make fund switches as you deem fit.
The charges on your plan will stay the same and your pension can still benefit from future investment growth. You cannot make any further contributions, however.
If you choose to transfer the benefits out of your previous employer’s scheme, you have a number of options:
There are several factors to consider before you make this decision. Firstly, can the new plan accept a transfer in? Then, you and your financial adviser need to compare both schemes regarding the choice of funds, charges, risk, fund performance and access options. Access to DC benefits is allowed from age 50 once you have left that employment. If you transfer a preserved pension to a new employer’s scheme, the transfer value must be paid out at the same time as the benefits are paid from the scheme it has been transferred into. Remember that transferring could mean you may have less investment diversification.
A PRSA is a long-term savings account designed to help people save for retirement. Transferring to a PRSA means you sever the link from your previous employment and can choose from any funds available in the market. You may, however, end up paying a higher level of charges than with your previous plan. A transfer from a company-defined contribution scheme to a PRSA will require a written certificate comparing the benefits of the scheme and the PRSA, called a Certificate of Benefit Comparison. An individual must pay a fee to have this comparison done.
A BOB is an insurance policy or bond purchased in the name of a beneficiary by scheme trustees in lieu of the beneficiary’s entitlement to claim benefits under the scheme. The policy is set up in the individual’s name and they can take their benefits any time from age 50 to 70. They do not need to be retired to do this and can still build up pension benefits elsewhere. A BOB allows the individual to choose their own adviser and investment strategy.
A growing cohort of individuals have a combination of DB and DC pension benefits. The previous guidance from Revenue in this respect was that all benefits built up in the same employment had to be taken at the same time, but this has changed.
For example, let’s assume you accumulated a DB pension benefit with an employer, with a retirement age of 65. During your employment, the company switched to a DC plan, meaning you had both DB and DC benefits. If you left this employment and were over age 50, the previous guidance from Revenue was that you had to take all benefits relating to that employment at the same time. In other words, you could not take any benefit until age 65.
The guidance from Revenue has now changed. In the above example, you would be allowed to draw the DC benefit from age 50 and wait until age 65 for the DB benefit. This new flexibility could prove to be a game changer for many individuals with mixed DB and DC benefits, although it creates a new layer of complexity with benefits taken at different ages.
With choice comes such complexity. The right option for you comes down to your needs and circumstances. As with any major financial decision, you should seek professional, impartial advice from a suitably qualified and experienced professional before taking the plunge.
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