what to do with a deferred pension transfer amount

[frank2b20]

I have recently received the transfer amount for a wound up company defined benefit pension.
The trustees have informed me I have the following options:

1. transfer to my current employer's pension scheme;
2. transfer to a PRSA;
3. transfer to a personal retirement bond.

I am 50 yrs of age and the transfer amount is over 100,000 euros.

Any advice?

 

[Steven Barrett]

There are pros and cons to each option:

If you have less than 2 years service with your current employer and transfer in your deferred benefits, the vesting period will transfer too so you are automatically entitled to the value of your employers contributions. If you die while working for them, the death in service is 4 times salary and the remainder is used to purchase an annuity. If you have death in service benefit already with your current employer, it is likely the full value of the benefit is used to purchase an annuity. Your employer may be paying all/ some of the management charges, reducing the costs to you.

If you transfer to a PRSA, you will have to get a Certificate of Comparison done which will cost you €1,300.

Transfer to a personal bond - the plan is in your own name and you have control over it. You chose the investment funds and provider. As it's in your name, you pay all of the charges. If you die before maturing it, the full value gets paid to your estate tax free.


Since last week, the ARF option became available to transfer values from defined benefit schemes so the options at retirement are the same under each scenario.

Options 1 and 3 are the ones I would look at, neither one is an incorrect decision. It comes down to which one suits you best.


Steven
www.bluewaterfp.ie

 

[Dan Murray]

Hi frank2b20,

I had a look into a similar question for my son recently. I would recommend you seeking fee-paid professional advice.

For example, whilst I agree with most of what SBarrett says, my understanding is that:

1. I don't believe you need a Certificate of Comparison
2. Your decision will impact on when (i.e. the age) you can have access to these funds
3. Your decision will influence how much of the fund you can take as a tax free lump sum
4. You may not be able to transfer to a PRSA depending on the length of service you had in your pension scheme.

All of these points combine to illustrate how unnecessarily complicated and illogical the whole pension system is. Just to elaborate a little and examine one of the above points, if you have more than 15 years as a member of your occupational pension, my understanding is that you can not transfer into a PRSA. I just now googled to try understand the precise rules. Guess what - a well known commentator (Tony Gilhawley) states that it's even uncertain what 15 years means!

The transfer can’t be made if the individual has been a member of the scheme (including of any scheme related to the same employment or group of employers) for more than 15 years. There is some ambiguity in the industry as to whether the 15 year period includes or excludes membership of the scheme as a deferred member, i.e. whether it only relates to active scheme membership? Some trustees/scheme administrators take different views on this, but most seem to take the view that the 15 years relates only to active membership of the scheme as an employee.

Such confusion is utterly ridiculous. These crazy complications are a complete shambles and will continue as long as there is no single authority responsible for overseeing pension policy.

 

[Steven Barrett]

Dan,

You are correct on the Cert of Comparison. I forgot that the scheme is being wound up so no cert is required in that instance. The 15 year rule will still apply.

Agree 100% with how unnecessarily complicated pensions are.


Steven
www.bluewaterfp.ie

 

[Dan Murray]

Hi Steven,

I suppose, on one level, these complications help keep yee folk in a job (read normal people just can't stomach the minutiae!!). This is not having a go at you, I think you said something similar yourself, previously?

I can't help feeling that the time and energy employed in understanding and then repeatedly explaining such technicalities has a major opportunity cost - in that it hoovers time away from genuine value added activities like goal planning, structuring investments, etc. I have a strong suspicion also that much adviser time is also wasted in complying with compliance protocols of dubious merit.

 

[Steven Barrett]

I joke that it does keep me in a job but I really hate it. Trying to explain nonsensical rules to people about what they can and cannot do with their pensions etc. The amount of looks I get from people saying "that doesn't make any sense at all"!

At the end of the day, if people are paying me to set up their retirement plan, they expect me to ensure that it is structured correctly and to their needs. Most don't want to be bored with knowing the difference between a PRSA and a PRSA AVC. They just want to put money into a plan for retirement.


Steven
www.bluewaterfp.ie