Transfer of DC occupational pension fund to PRSA before retirement in April 2027

[Le Chiffre]

I will turn 65 in April next year and intend to retire at that time. I have a DC pension fund from my former employer, the plan name is LifeSight through WTW (Willis Towers Watson). I was made redundant a couple of years ago and took the redundancy lump sum tax free. I understand I can't take a tax free lump sum from my occupational pension but that I could do so if I transfer the fund to a PRSA. The fund is currenty c. 370k.

I am interested in transferring to a Royal London PRSA on an execution only basis, as often discussed on this forum. My main question is, will this be possible given the short timeline to retirement? I am concerned that brokers won't be interested in my business.

I presume a Certificate of Benefits would be needed. I recall reading on here that a particular company/broker would do this for €1,000 but can't find the thread again.

If I am able to transfer, I intend to take a tax free lump sum on retirement and convert the balance to an ARF. I believe I have also read that it could be left as a PRSA which would be broadly similar to an ARF but am not sure how that works.

I also have a small PRSA with Irish Life (Clear PRSA Plan (1%, 4.5%)) which could be transferred also.

As finance is not my field, I would be grateful for any advice the experienced members of this forum can give. Thanks in advance.

 

[ClubMan]

I believe I have also read that it could be left as a PRSA which would be broadly similar to an ARF but am not sure how that works.

That would be a vested PRSA which is similar to an ARF in that you can take a regular income from it after optionally taking a tax free lump sum. In some cases the charges on an ARF may be lower than on a vested PRSA but these days a PRSA with low charges should be comparable/competitive.

I also have a small PRSA with Irish Life (Clear PRSA Plan (1%, 4.5%)) which could be transferred also.

Keeping this separate (and maybe even splitting the main PRSA transferred from the DC scheme if that's possible into smaller policies) can offer additional flexibility in terms of staggering access to pension benefits rather than this being a one time only/all or nothing event.

As finance is not my field, I would be grateful for any advice the experienced members of this forum can give.

I am interested in transferring to a Royal London PRSA on an execution only basis

These two points are potentially in conflict. You sound like you may need an advisory rather than execution only service to me.

 

[Smoneen]

The end may be approaching for this loophole. The Finance Bill has included wording which appears to be an attempt to extend the “relevant capital sum” to other products.
This has generated a number of questions in the industry which have been referred to Revenue and to the Dept of Finance for review.
For now you need to keep an eye on the Finance Bill as it goes through the stages.

 

[Setforlife]

I don’t think it’s in doubt that they have changed it, assuming bill goes through, the below from kpmg. It massively changes the maths of taking a voluntary redundancy in 50s, or even earlier as it will hang over people for life now, surprised it hasn’t seen more commentary. The OPs query is well timed, should move to a prsa straight away before end of year.

Under existing rules, the calculation of the Increased Basic Exemption or SCSB requires the “relevant capital sum” to be deducted from the potential exemption available unless the recipient chooses to waive their right to a future tax-free lump sum at retirement from the relevant Irish Revenue approved occupational pension scheme (which may enhance the tax relief available on the termination payment).

A formal waiver must be signed on or before the termination date. Individuals whose pension benefits were provided through other relevant pension arrangements, such as a PRSA, were not required to deduct the equivalent net present value (NPV) of their future tax-free lump sum when determining tax relief, providing a potential tax advantage for such pension arrangements as compared to occupational pension scheme members.

The Bill now requires the NPV from those arrangements to be deducted in the calculation of tax relief due – a right to waive the future tax-free pension lump sum is still permitted. The change is expected to take effect from 1 January 2027.

 

[Steven Barrett]

You are 100% correct @Setforlife , the loophole is going to be closed so if you waived your right to a lump sum and want it back, you better get your skates on as a comparison of benefits will have to be completed and that takes a couple of weeks with current workflows.

 

[Setforlife]

You are 100% correct @Setforlife , the loophole is going to be closed so if you waived your right to a lump sum and want it back, you better get your skates on as a comparison of benefits will have to be completed and that takes a couple of weeks with current workflows.

Do you think there is any chance of the change being removed from the finance bill Steven? I know it has caused concerns in some workplaces that voluntary redundancy schemes will become much less attractive overnight.

 

[ClubMan]

Do you think there is any chance of it being removed Steven?

The end may be approaching for this loophole. The Finance Bill has included wording which appears to be an attempt to extend the “relevant capital sum” to other products.

 

[JoeRoberts]

I know it has caused concerns in some workplaces that voluntary redundancy schemes will become much less attractive overnight.

But not for all. Some people don't have the option of this loophole . Need a level playing pitch.

 

[Le Chiffre]

Thanks all for your input and information on the upcoming closing of this loophole.

@ClubMan I take your point re the potential conflict in those statements and realised that after I posted. I do feel comfortable choosing a pension product and provider; my questions are really around whether a move to a PRSA is possible.

Would appreciate any advice on a) whether an execution-only broker would be interested in my business and b) where to get a low-cost COB if possible.

 

[JoeRoberts]

Without taking this off topic. who is going to provide and pay for the npv calculation for a prsa ? Unlike an occ pension there is no scheme actuary.

 

[ClubMan]

Without taking this off topic. who is going to provide and pay for the npv calculation for a prsa ? Unlike an occ pension there is no scheme actuary

You mean as part of the Certificate of Benefits Comparison process when transferring from an occupational scheme to a PRSA? The individual pays someone to do this. As far as I recall it can cost maybe a couple of grand.

 

[ClubMan]

From another thread in case it's of use...

If your transfer value is over €10,000 and your old employer's pension scheme is not being wound up, then you can transfer to a PRSA but you need to get a Certificate of Benefits Comparison (COBC) from an actuary to do it, which will cost you around €1,200 + VAT.

As an alternative, you can set up a PRSA with Royal London for the new contributions and transfer the old fund into a Royal London Personal Retirement Bond (Buy-Out Bond). You'll have two policy numbers but you won't need to pay for a COBC.

If your transfer value is less than €10,000 you can transfer to a PRSA without a COBC.

 

[JoeRoberts]

You mean as part of the Certificate of Benefits Comparison process when transferring from an occupational scheme to a PRSA? The individual pays someone to do this. As far as I recall it can cost maybe a couple of grand.

No. If someone is getting a redundancy.

 

[Setforlife]

But not for all. Some people don't have the option of this loophole . Need a level playing pitch.

Agreed, but it could have been levelled by not penalising anyones pension lump sum, rather than this way.

 

[JoeRoberts]

Agreed, but it could have been levelled by not penalising anyones pension lump sum, rather than this way.

But it was there before prsa was invented.

 

[Setforlife]

But it was there before prsa was invented.

Not sure what bearing that should have on it, it was never aimed at pension payments down the line, it was aimed at payments at the same time as the redundancy. The idea that someone signing a waiver to get an extra say 40k now at 50 say, should mean them giving up their access to 200k in future pension lump sums is just not equitable either way. It also penalises people who actually made big efforts to save into their pension.

 

[JoeRoberts]

Not sure what bearing that should have on it, it was never aimed at pension payments down the line, it was aimed at payments at the same time as the redundancy

Well that is not what the legislation states. And future payments if they are that far in the future are sorted by using the NPV.
Taxation of redundancy and pensions is quite fair when all things are considered.