Prb/bob

Query is very much similar to this thread

http://www.askaboutmoney.com/showthread.php?t=186964

Details are;

- Fathers old employer winding up DC fund
- Value of his fund is €173k
- Aged 55
- No pension in current job
- Option of transferring to PRSA (doesn't have one) or PRB/BOB


The PRB/BOB he is being offered is with Irish Life and a 0.65% annual management. Their range of funds is reasonable and he is happy with them and will manage the split online and transfer as required as he gets even closer to retirement etc.

He is working and doesn't want to take his TFLS and pension for as long as possible but wants access to it.

So my questions are;

1. In these circumstances is there any negative to a BOB as compared to having to set up a PRSA and investing it in there? I've done some reading and most of the disadvantages quoted to BOB's don't seem an issue aside from the investment risk one.

- If anything the BOB fees at 0.65% look lower than most PRSA's (circa 1%)

2. From obvious reading he can contact Irish life and take his TFLS and pension at any time. Can someone just confirm this please. There is no MV adjustment or % taken out for doing this - correct?

3. I assume any annuity rate he is quoted won't be affected by it being a BOB as compared to a PRSA etc.

4. The only charge is the 0.65%? correct?

The investment risk is there regardless of whether it is a BOB or a PRSA. The BOB will have a better fund choice than the standard PRSA. Be aware that not all of Irish Life's funds will have the 0.65% management fee.
2. He can draw down his pension at any time. There is a good chance though that there are early exit penalties in the first 5 years. I think that contract is looking at 5% penalty in the first 3 years, 3% in year 4 and 1% in year 5. He will need to confirm that with the adviser though.
3. Annuity rates will be the same whether he goes BOB or PRSA. They are generally influenced by long term bonds.
4. You need to confirm that with the adviser but it appears so.



Steven
http://www.bluewaterfp.ie

Cheers for the reply SBarrett. On your reply re the 0.65% - I assume given they've given him a list to chose from that the 0.65% will be applied to all of those? Even if the standard management fee quoted on their fund page is higher.

I will get him to follow up on the early exit penalties.

They may have only given him one fund to chose from, the Consensus fund, which there's a good chance that he's in anyway. He's probably getting the same management fee that was charged under the group scheme that he was a member of.


Steven
http://www.bluewaterfp.ie

SBarrett said:

2. He can draw down his pension at any time. There is a good chance though that there are early exit penalties in the first 5 years. I think that contract is looking at 5% penalty in the first 3 years, 3% in year 4 and 1% in year 5. He will need to confirm that with the adviser though.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

Click to expand...

Some of the larger scheme administrators can waive exit penalties for PRB's if extra allocation is not being offered and even in cases where extra allocation is being offered a reduced exit penalty can apply depending on what age the person is. However in the case that Kennyb3 outlines I would not think extra allocation is being offered due to the age of his father or else if extra allocation is being offered there will most definitely be some form of exit penalty.

Kennyb3 I would completely ignore what it says on the page which outlines Standard Management Fee's as this is a generic page which lists all funds available under a standard PRB.

The scheme administrators have the option to reduce the SMF but this usually reduces the amount of funds available to invest in as the PRB is specially designed for the closing scheme. When they do this they are obliged to provide a Fund List which details a list of funds available as well as AMC attributed to each fund.

Also he needs to consider the maximum tax free lump sum available on either option.

On PRSA its 25% of the fund with balance going to an ARF/Annuity wheras the BOB will have option of up to 1.5 times final salary in a lump sum and balance to buy an annuity.
The tax free lump sum could be much higher than on a PRSA. Depends on what his final average was and number of years with the last employer.

Also service must be less than 15 years to be allowed a transfer to a PRSA.

BOB's from DC schemes have ARF options since 2011. Strictly speaking BOB's that were taken out prior to 2011 budget do not have this option at the moment but I have it on good authority that Revenue are reviewing this and there should be an eBrief released within the next couple of weeks giving pre 2011 ARF options.

I believe that the big issue from Revenues view with ARF options being applied to BOB's is that life companies did not record if the BOB came from either a DB or a DC scheme as there was no point at the time in life companiew recording this information

IrishRain,
Not sure you are fully correct in your comments:

• Since the transfer is coming from a DC scheme, whether he transfers to a PRSA or a BOB he can still take 25% of the accumulated fund as a retirement lump sum
• Similarly, he can use the residual 75% to either buy an Annuity or invest in an ARF on retirement.
• If he chooses to take 1.5 final salary as a retirement lump sum (depending on service) then he has to buy an annuity with any residual cash

The BOB investment charges (at 0.65%) will probably be attractive in comparison to a PRSA (where they are typically 1% p.a.). The client just needs to watch out for any "early encashment charge", which typically only applies if the BOB is encashed during the first 5 years.

Apologies for confusion.

My point was that he may get a higher tax free lump sum under a BOB than a PRSA. i.e. if he had a salary of €100k and 20 years service he could potentially then take 100k x 20/25 x 1.5 = €120k tax free with the balance going to an annuity.
Alternatively under ARF option on either BOB or PRSA he could take 25% tax free of €44k approx and balance to an ARF.