The No-Nonsense Guide to Transferring Your Pension
How many companies have you worked for in the past, oh, let’s say ten years? Two? Three? More than five? The days of sticking with one employer for the entire duration of your career are well and truly over. So while the generation before us often reached retirement age with a single pension to unlock, it’s highly likely that you already have more than one pot for your pension from previous and current employers.
What’s the big deal, you ask? Isn’t it ok to have more than one pension pot? Surely they all end up doing the same thing – i.e. funding your retirement, so does it really matter if you have one or five of them? Technically, that’s true. But while it might seem like leaving well enough alone is the most hassle-free way to manage your pension, there are plenty of alternative choices available to you.
In this article, we’re breaking down your options when it comes to having multiple pots to help you decide if transferring your pension is a wise move.
Not all pensions are created equally.#
First things first. If we’re going to talk about pension transfers, we first need to look at the main types of pensions that exist in Ireland. Because chances are, the first pension that you ever set up is likely to be very different to one that you’re contributing to right now. You may have started your first pension as part of a company pension scheme and paid the bare minimum into it every month because it was the responsible thing to do, but also – rent doesn’t pay itself!
There are four main pension types in Ireland, and it’s very possible that your own pension pots fall into more than one of these categories:
Executive or Occupational Pension:
Also known as a company pension scheme, an executive pension is one that both employers and employees can make contributions to, as well as claim tax relief on. Investment choices are generally widely varied. Claiming the fund can take place from the age of 50, provided you are no longer an employee with that particular company. This is the most common type of employer pension scheme in the country.
Personal Pension Plan:
This is a private pension, typically set up by Sole Traders or those who don’t have access to a company pension scheme. Tax relief is based on your age, and you can take your benefits from your 60th birthday onwards.
PRSA (Personal Retirement Savings Account) is available for anyone who doesn’t have access to a company pension scheme, for example part-time or casual workers, self-employed individuals, jobseekers, etc. It is also a common scheme amongst those who are in employment but whose employer does not contribute to their pension fund (although they are still entitled to do so under this scheme). There are two different types of PRSA – standard and non-standard, and the difference between the two lies in what you can invest in as well as the charges you incur (not capped for non-standard PRSA). You can draw your PRSA benefits from the age of 60, while still remaining in employment.
Personal Retirement Bond:
A Personal Retirement Bond (or Buy Out Bond as it’s often called) can’t exist unless you have previously held one of the above pension types and are transferring those benefits into a bond that has been established in your own name. So you won’t contribute to a PRB, as such. Investment options are widespread and access is granted from the age of 50.
So if you have accumulated a number of pensions over the years, you can see how they could all be performing very differently. Different access terms, different investment options, different rates, different charges. And keeping track of all of this on a regular basis is no easy feat.
Taking everything we’ve talked about up to this point into consideration, let’s break down each of your main options for transferring your pension(s).
Option 1: Do nothing – leave your pension with past/current employers
Aka the easiest option. Let’s not forget though, that doing nothing is still doing something. While it might be tempting to simply leave your pension pots with previous or current employers, it might not be the best option for you in the long run.
For starters, you need to make sure that each of your pension providers have your most up to date address and contact details so that you receive your personal benefit statements every year. Secondly, it’s extremely difficult to see the entirety of your pension benefits when you have multiple pots with different employers. Finally, depending on the type of pension you held with your former company, it might not have a chance to grow any further, for instance if it’s been converted to cash rather than staying in the investment realm when you ceased employment.
Option 2: Transfer your old pension to your new employer
Again, there’s nothing wrong with this option. But if you happen to move onto another new opportunity in the future, you will inevitably face the same decisions – do you leave your pension with that employer, or transfer it once again? It’s important to note that not all pension schemes allow for this type of benefit transfer, for example the rules for transferring an existing fund into an employer’s PRSA are different to those for transferring into an executive pension.
Transferring your previous pension benefits to your new employer is something that could certainly be worth considering if you envisage staying with the company for the long haul and the benefits of joining their scheme outweigh those of transferring to a Private Retirement Bond.
Option 3: Transfer your pension to a PRSA
While it’s quite straightforward to transfer a previous private pension or existing PRSA into a new PRSA, it gets a little trickier when you are dealing with moving benefits from a previous company pension scheme. Firstly, you can only transfer your existing benefits from a company pension if you have been a member of that scheme for less than 15 years, and are making the transfer either because the scheme is winding up, or you have left that employment.
However, if you have made Additional Voluntary Contributions (AVC) to an occupational pension scheme this itself can be transferred over to a PRSA, regardless of how long you held that pension for.
Option 4: Transfer your pension to a Private Retirement Bond (PRB)
Out of all of the options available to you, transferring your previous pension benefits into a Private Retirement Bond (PRB) will likely give you the most control, as well as visibility over your pension. With a PRB, everything is in one place. Any previous pension scheme trustees or employers will no longer have any involvement with your retirement fund. So rather than having multiple pension pots with varying access terms, that are all being invested in different ways (some of which you might have no control over) you get to make the decisions about where your funds are being invested – though we’d recommend that you draw on the experience of a financial adviser to do so. You also have the option to transfer your PRB to another PRB in the future should you wish to.
Depending on your own personal circumstances, a Private Retirement Bond is also a popular choice for transferring a pension that you may have accumulated from working in the UK and keeping it under one roof alongside your other pots.
A Private Retirement Bond also tends to give you more options at the time of retirement. These include:
Taking a once-off tax free cash lump sum (typically up to 25% of the asset value)
Purchasing an annuity with the remainder of the funds
Transferring the remaining funds to an Approved Retirement Fund and/or Approved Minimum Retirement Fund, which would also be held in your own name.
Access to a PRB is possible from the age of 50, but in the event that you become seriously ill and need to access it earlier, you may be able to draw down your fund. If you die before you access your PRB, funds will be paid to your estate.
How to decide which option is best for you
Knowledge is power. A pension is often something that we don’t pay great attention to so long as it’s ticking away in the background throughout our careers. But burying your head in the sand when it comes to your pension isn’t going to serve your retirement if there is an opportunity to get more out of the pots that you are contributing to every month and year.
Take the time to look at your retirement goals, as well as how your existing pension is performing. Gather all of the information you can on your previous pension schemes – have you accounted for all of them? Are they just sitting there? Do you know how they are being invested or what charges you are incurring?
Consider all of your options, and if you are interested in finding out more about transferring your pension, get in touch with us for a consultation to start building out your pension roadmap to guide your life in retirement. It’s never too late.