Upcoming redundancy and pension decisions

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rollingstone

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Hi All, being made redundant in the next few months. Aged 50, with 18 years service with this employer (multinational). Member of the occupational defined contribution scheme, projected pension fund value at end date is c €600k. This scheme is being transferred into one of those master pension schemes before I leave, not sure if that's relevant here. Not married, no children. Until recent times, I have not analysed pensions in detail as I guess it was something I considered to ponder later in life. But given the redundancy, it has prompted me to seriously assess all my financial matters and the pension topic is one that I still find very complex. It feels like a real fork in the road moment in life for me. Right now, my feeling is that I don't have an appetite to go back to the long hours of the corporate world, and I am also acting as carer for an elderly parent. I haver also been advised by recruiters that it will take me some time to find a new role, based on my age (not PC maybe, but I know people in similar situation and this has also bene their experience) Therefore I now want to make my pension work for me as best possible. I live in a modest house for which I cleared the mortgage this year from savings. My current outlook is that I would like to extract the maximum amount from my pension as early in life as I can so that I can enjoy it while I'm physically able, and to avoid excessive management fees that some pension funds seem to charge. I appreciate that pension is to provide for later in life. I'm prudent financially and would ultimately prefer to invest the money myself and maintain control over the investment types but also that I can cash in/out under my control. In that context I have the following specific queries that I would like your views on (I have been reading through the forum where there are excellent contributions on these topics so I hope to be as concise as possible here):

1. Waive the right to pension lump sum on redundancy settlement - I have been following the discussions here regarding availing of this 'loophole' whereby the pension is transferred to a PRSA. There appears to be conflicting views as to the risk of this process, so that's something for me to consider. Initial calculations from the redundancy settlement would mean that I would avail of a net increase of €16k if I signed the waiver. My initial feeling was this is a lot of money and was the way to go, but researching PRSA's and it appears that some funds have an annual management fee of 1% of the sum invested. This is a fair chunk to be taken every year from my savings every year, and has me reconsidering this option. This is ignorance on my behalf, but are these charges comparable to other pension options I might choose? Or are PRSA's generally considered an expensive route?
2. Buying an annuity - seems to be effectively a pension for life, taxable at the marginal taxes rate?. I believe I can select an option whereby remaining funds on my death can be distributed to dependants but this appears to incur additional charges to implement from the standard Annuity, therefore my feeling on this is a 'no'. If I have not considered something else for Annuity, please let me know.
3. ARF - initial assessment is that I can manage the fund, and make withdrawals as required, which are again taxed at the marginal rate. What are the advantages or disadvantages of this option?

My employer has told me that my options on leaving are to (a) stay in fund as a deferred member (b) transfer pension to new employer pension plan (c) Personal (buy out) bond (d) transfer to PRSA. I will also enquire if I can take early retirement under the plan, including drawing down a retirement lump sum amount. I assume most here would advise against that course of action, but I'd welcome your views.

Thank you for taking the time to read my post; any guidance you can provide would be enormously appreciated.
 
Hi Rollingstone

I think a money maker over post using the template would be required to get a better view of your overall finances. Detailing your current and expected assets plus the current and expected future expenses. You don’t mention current income, savings, expenses or the expected redundancy amnt

As I understand the loophole u mention re point 1 the only risk is that’s it’s not available in the future, it’s currently available so would be a no brainer to utilise. The 16k difference you mention above as signing waiver or not seems low for an 18 year tenure and assuming as a multinational there’s a decent company payout of x weeks per year. Depends a lot on your annual base rate I guess…but the actual figures as referenced above would help.

Redundancy can work out as a godsend for some. In your shoes if I had with no mortgage, no dependants plus a freshly injected cash reserve that this would provide, I would be planning to move the pension to an ARF. Then start to draw down a small % each year to maximise the annual tax allowances and top up with an easier/part time job as needed. This would give you flexibility to help with caring needs for your relative and also ensure your state pension continues to accrue stamps.

Btw - I call bullshit on the recruiter. 18 years experience in a multi action will have a lot of transferable skills., especially when you don’t want or need to go for a bigger role. I am almost 49 and changed jobs in April after about a 6-8 week search (which is after I gave up on waiting for redundancy after 15 years with a multinational)

50andO
 
Not answering your question about retirement directly but more about finding at job at 50. Had close experience with it recently. The person found 2 jobs last year at 50. One while in a job and being contacted by an agency. The other one, actively looking for a new position after 4 weeks of unemployment. Depending on your area and experience, it can done particularly as the unemployment level is currently so low.
 
If possible you should make AVCs to maximise your tax allowable pension contributions for 2022 and 2023 up to a level where you can claim relief at 40%.
 
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Hi Rollingstone, A couple of points to consider.
  1. Re your fork in the road situation - yes moneymakeover might help but a full financial review on a fixed fee is probably going to give you more clarity and confidence for a big decision that can have life long consequences
  2. PRSA costs - now can be 0.5% AMC
  3. Waive lump sum or not - needs some detailed consideration
  4. Annuity vs ARF - should be dealt with in financial planning above
  5. Timing and scale of ARF drawdowns - should be dealt with in financial planning above
We have dealt with many clients in a similar situation. If you get clarity on all the above, then you may find yourself in a position that you choose to go to another job. The difference in choosing to go to a job as opposed to having to, is huge. We have seen client launch second/third careers at an older age and their attitude and experience of the new role is transformed as they now have the confidence that they can stop working if they wish to. The luxury of choice!

Best of luck with it.

Vincent
 
Rollingstone - About being made redundant at 50..
This happened to me at 50 too, and I had 2 job offers after a couple of months. I am still in the job i chose, and will turn 60 this year and hope to retire around 62.
Maximise your pension contributions whenever you can.

Don't let anyone use age as a disincentive to seek another job. If you have the experience and attitude then age will be irrelevant.

BTW, i put my DB pension pot into a PRB. I took the extra tax-free lump sum which means i cannot take the 25% TFLS from that pension later.
 
I also noticed that you speak of 600k as the projection for your fund (I would imagine at 65 or 66). But what is actually the current value for it. If you are thinking of "retiring" now, that is the important figure as you would have to think about making that amount work for you for the rest of your life (could be 35 or more years)
 
If you're with Irish Life (and I'd guess other schemes) then their online projected fund value includes contributions you and your employer expected to make until the date that pension is supposed to pay out.

If there were contribs of 10k a year going in, that's ~150k you need to take off the projection.
 
Thank you all sincerely for your replies. Appreciate the encouragement regarding finding alternative work - to be honest I think my self-confidence has taken a hit with being made redundant, but I need to get over that and move on with a new perspective, its easy to get tunnel vision when you've been with the same company for 18 years.
To add some info to some of the points made:
- I did engage the services of a professional financial advisor. He very much pointed me to a PRSA, in particular Zurich funds. While I definitely did learn quite a bit more from the advisor, I was also a bit wary that he seemed to have a bias towards particular providers, products etc. That being said, I think its worth meeting him again as my decisions time draws near, and while wary, I also respect the fact that these guys know more about this than me.
- projected pension fund value of 600k is the projected value when I leave the company this year - it is the current value of the fund, plus planned AVCs that I intend to make for 2022 and 2023 as was also proposed above (I have maxed AVCs for a number of years).
- pension fund manager is indeed Irish Life.
- if I transfer from my occupational pension to an ARF, does this mean that I cannot waive my right to a pension lump sum as part of the redundancy process? My understanding was that this option is only available if the fund is transferred to a PRSA?
- the figure of 16k additional severance on waiver was calculated based on a computation spreadsheet provided by HR, whereby you input the option if you are waiving or not......
 
The decision to waive the tax free lump sum needs a lot more consideration. By waiving, you're saving €16k in tax. On a fund of €600k, you're giving up €150k tax free (probably even higher on the salary and service basis), which would avoid €30k in tax if you were only paying 20% (and completely ignoring PRSI and USC).

I understand you're looking into the PRSA loophole, but you need to be certain that route will give you the outcome you need.
 
Just FYI PRSA charges in other companies are now substantially lower than Zurich. e.g 0.5% p.a compared to 1% in Zurich. I would ask the broker why they are recommending the more expensive option.
 
North Star said:
Just FYI PRSA charges in other companies are now substantially lower than Zurich. e.g 0.5% p.a compared to 1% in Zurich. I would ask the broker why they are recommending the more expensive option.
Click to expand...
Who would that be with?
 
Mechman said:
Who would that be with?
Click to expand...
New Ireland and Aviva currently , though there is talk that Standard Life will soon also be at this level or below.
The firms with larger market share such as Irish Life and Zurich appear to be trying to hold the line at 1% charges on PRSAs. A mistake in my opinion. Having recently reviewed their updated PRSA offerings, we took the view that they were paying more commission to their brokers and not reducing charges to the client. So if anyone has recently been recommended an Irish Life or Zurich PRSA - as per the OP above, then they really need to ask why...

As there are no early exit charges or restrictions on moving PRSAs we are recommending anyone with PRSAs should jump at the lower charges being offered.
This is particularly true if you, as we are; are an advocate of lower cost passive investment management strategies. Happy to provide more info if needed.

Vincent
 
The reason the PRSA may have been mentioned was to try and take advantage of a loophole that may or may not work. There's a risk.

You should have no bother at all transferring to a PRB with an AMC of 0.5%.

Gerard

www.prsa.ie

PS: Zurich Life have had a 0.75% AMC PRSA contract available for the last twenty years. No one advertised that and it was rarely recommended. There's probably a bit more to it than 'price' as to why they are the No. 1 PRSA provider though.
 
Thanks Vincent and Gerard for the info on the management fee information, good to know that there are opportunities out there to shop around. I will go back to the financial advisor that I originally engaged and seek more info on the Zurich PRSAs that he was promoting so strongly.
Interesting to read some of the divergent views on this site with regards to the loophole around transferring the occupational pension to a PRSA after waiving the right to a lump sum on severance. I would have thought that the legality of it was clear (either way) but there that does not seem to be the case based on the inconsistent viewpoints here. Food for thought which I'll discuss with the advisor too. Thanks all.
 
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