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Saying “Goodbye” to your Employer and saying “Hello” to your Pension!

21 Sep 2016

With the economy now improving many employees are moving their services to new employers.  Many employees having cleared their desk and having put all their possessions (accrued over the years) into a box and moved on to the new employer many ‘forget’ to bring their pension plan with them and leave it with the former employer.

When an employee moves employment they have a number of choices in relation to their pension plan:-

  • They can leave the monies with the former employer (with their former employers consent)
  • They can transfer the monies to their new employer pension scheme (if they have a scheme and are willing to accept a transfer)
  • They can transfer the funds they accrued with their former employer into a Personal Retirement Bond.

In broad terms many employees tend to DO NOTHING unless prompted.  Many others take the view that they should simply transfer their benefits to the new employer scheme – so they can keep things ‘nice and neat’.

However this in itself is not a good reason to do so; there are number of reasons why you should seek advice about what you might do next:-

There may be some good reasons to retain your funds with the former employer – the charging structure might be very attractive, the scheme may have access to a wider range of funds.  In the case of premature death the deferred benefits will be paid to your Estate as a tax free lump sum.

If your first instinct is to move the monies to the new employer scheme – tread carefully;  Yes – the new employer may offer a ‘lower charge’ pension scheme and yes it may be nice to keep all your pension pots in one place but there are a number of considerable drawbacks to this approach:-

Locking in your pension monies

What if you really enjoy working for your new employer and you don’t anticipate retiring until 65 (or indeed later).  If this is you then you have effectively tied up your former pension scheme such that you can’t access these monies until you retire from your current employer.

Of course this may be ‘no bad thing’ as it essentially forces you to defer taking your pension until you ‘retire’.

However if you had transferred your former employer funds into a Personal Retirement Bond you would retain full access to these monies from as early as age 50 – even if you continue to work.

Having Less Control over how your monies are invested

If you invest your monies into your new employer scheme they may have more limited fund choices (this is not always the case) and you may have less choices in relation to how your monies might continue to be invested.

A transfer to a Personal Retirement Bond allows you to take full control over how the monies are invested – you determine the assets which make up the portfolio and the level of risk associated with the fund can exactly match your requirements.

Payment of your pension benefits on premature death BEFORE retirement

This issue is often overlooked and it is a KEY decision for NOT transferring your monies into your new employer scheme. Under current legislation if you die in service (death in service) the pension scheme can pay a lump sum not exceeding the greater of € 6,350 or four times the deceased employees final remuneration may be provided.

A refund of the employee’s own contributions (with or without) interest may be paid in addition to any other lump sum.

In many instances then where an employee dies and where the pension fund value exceeds 4 times their salary on death the payment of a lump sum is limited to four times their final salary.  Therefore if the employee dies and the pension fund at that time is valued at € 600,000 and the employees final salary is € 50,000 the maximum amount that can be paid as a lump sum is € 200,000.  The balance must be used to purchase an annuity for the dependants.

(This can often come as an unwelcome surprise to the beneficiaries who were anticipating full receipt of the € 600,000 as a tax free lump sum).

If the employee transfers his former employment benefits into a Personal Retirement Bond the full value of the Personal Retirement Bond can be paid as a tax free lump sum on premature death) – in addition to the employee receiving up to four times their final salary as a lump sum with their current employer.

Remember there is nothing to stop you moving your Personal Retirement Bond funds into your ‘new employer scheme’ at some future later date – if it might suit you to do so (e.g. lower charges / no desire to access these monies until age 65 etc.).

By transferring your legacy pension benefits into a Personal Retirement Bond you ‘keep all your options open’ and can take the ‘next step ‘ (i.e. encash from age 50 / transfer to new employer arrangement at some future date) as circumstances might suit you.

If you would like to discuss the transfer of any ‘legacy’ pension benefits to a Personal Retirement Bond don’t hesitate to contact us.

If you would like to discuss this type of cover in more detail don’t hesitate to contact us at Full Circle Financial Services Limited where we would be very pleased to help you.



Contact Number:- 01 2530060

Full Circle Financial Services Limited is regulated by the Central Bank of Ireland – C130136