Buy out Bond - what are my options

S

Spud50

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I have a few questions on Buy out bonds and whether I should take one out or not.


I am currently in a Company DC pension , im in my mid 50’s and my intention is to leave the company next year and life off investments for approx 5 years before setting up an ARF


If I take out a BOB, can I access it at any age I choose ?? (subject to early exit rules of the BoB)


If I take out a BoB , presumably there is a setup cost and an annual fee (are these fees similar to ARF set up / annual fees ?? my fund >800k)

If i take out a BOB ,presumably i can self direct it in a vanguard ETF


Would I be better leaving my funds in the company DC fund, if I Ieft my funds in the company scheme, I would be gone from the company for 5 years before I access my funds and I would be worried about lack of updates possible obstacles that could be thrown in my path 5 years later by trustees/company if change of management.


Any other costs/risks I should take into account ?
 
You need a Financial Planner to do some modelling for you and in particular to stress test your assumptions and intentions so that you can derive an expected return for a particular strategy

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Which you can then project forward to give an idea of your likely gross income


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Planners should use a stochastic model to test if you are likely to run out of money during your life expectancy

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Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
 
Spud50 said:
I have a few questions on Buy out bonds and whether I should take one out or not.


I am currently in a Company DC pension , im in my mid 50’s and my intention is to leave the company next year and life off investments for approx 5 years before setting up an ARF


If I take out a BOB, can I access it at any age I choose ?? (subject to early exit rules of the BoB)


If I take out a BoB , presumably there is a setup cost and an annual fee (are these fees similar to ARF set up / annual fees ?? my fund >800k)

If i take out a BOB ,presumably i can self direct it in a vanguard ETF


Would I be better leaving my funds in the company DC fund, if I Ieft my funds in the company scheme, I would be gone from the company for 5 years before I access my funds and I would be worried about lack of updates possible obstacles that could be thrown in my path 5 years later by trustees/company if change of management.


Any other costs/risks I should take into account ?
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- Yes, if you are in your 50's and have left the company, you can mature the pension at any time.
- the fees are set up fee and ongoing annual management charge
- A self directed BOB or an insured bob will both give you access to Vanguard. Under the self directed option, you can access all of Vanguard's European funds and etfs whereas under the insured option, you can access the ones that the life company make available.
- It depends on the charges and the funds available. A lot of the bigger occupational pension schemes are pretty cheap and your employer meets the administration costs. But unfortunately, a lot of them use Irish Life as their fund manager who have consistently produced below average returns for investors. So where you save on fees, you miss out on returns. The money is yours, so if you keep up to date on who the administrator is, you'll be fine. Once the money is in your hands, you pay for it.


Steven
www.bluewaterfp.ie
 
Thanks a lot Marc ,Steven, Gordon for the informative response, some good points that i need to take into consideration
and has answered a lot of my doubts
 
There is a new EU Directive on Pensions, that Ireland has yet to legislate for. I think one of the sections deals with companies having to provide annual statements to all members, not just active ones in future.

Have you looked into getting online access to the DC scheme, and asking if the same access if available for inactive members? Then you could keep an eye on it yourself.
 
ginslia said:
There is a new EU Directive on Pensions, that Ireland has yet to legislate for. I think one of the sections deals with companies having to provide annual statements to all members, not just active ones in future.

Have you looked into getting online access to the DC scheme, and asking if the same access if available for inactive members? Then you could keep an eye on it yourself.
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thanks Ginslia, i have online access(and phone app) which is great , i will check out my options with the company /trustees
 
Just on the issue of seeking advice or information from the trustees.

We have been approached by two clients recently who have moved abroad and asked the trustees of their former occupational scheme what their retirement options were.

They were both told categorically that their ONLY option was to purchase an annuity.

They then (too late as it turns out) asked us if they had any other options and were of course horrified to find out that what they should have told by the trustees was “your only option with US is to purchase an annuity. You should seek independent advice.”
 
If you are leaving it in your current scheme for any time after you retire, make sure that the pension scheme has your contact details, if they have a work email for you change it to a personal one.
 
If you decide to live off investments, and do not work, or, draw from your ARF, you won’t have insurable weeks for those years, and this could impact your state contributory pension.

However, if you draw from ARF 12,500 per annum( and therefore pay PRSI @ 4% class S), this will fully satisfy the minimum €500 prsi per annum, and also give you 52 insurable weeks each year.

It would also be tax efficient, as there won’t be a PAYE liability, based on annual PAYE income of €12,500, if you have the standard €3,300 annual tax credits, indeed, you could transfer €800 of the unsused tax credits to your spouse.

But note, when you transfer from DC scheme to a BOB, there are often exit charges for typically up to 5 years, but there are also options, for immediate access, which usually would mean higher fees.

I have 24/7 online access to my BOB, and can check it anytime i want, this would be a normal facility provided.
 
fayf said:
But note, when you transfer from DC scheme to a BOB, there are often exit charges for typically up to 5 years, but there are also options, for immediate access, which usually would mean higher fees.
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Self directed products don't have early exit charges and most life companies do have an offering with no exit penalties which are pretty cheap.
 
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