Where should I transfer my work pension now that it is liquidated?

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Q My current employer is terminating their defined benefit (DB) plan because my boss is being bought out by another company who has decided not to continue the plan. I have been affiliated to the plan for 25 years and I have ten years left before I retire. It is not clear if my new employer will offer some type of company pension and therefore there appears to be a choice between transferring the DB benefit that has accrued to a PRSA or a Buy-Out-Bond. What is the best option and do you have any advice on how I can ensure a smooth transfer? Pat, County Galway

A One of the main differences between a PRSA and a buy-back obligation (BOB) concerns the ability to contribute additional funds to the schemes.

A PRSA can receive new contributions to supplement your current pension pot, but a BOB cannot receive new contributions. It might be a good idea to transfer to a PRSA if you might want to deposit additional funds for your pension.

As you mentioned, you still have ten years before retirement, I assume you will retire at 60. Under tax rules, you could contribute 30% of your salary and claim tax relief for pensions (subject to a maximum salary of €115,000) between the ages of 50 and 54 and 35% between the ages of 55 and 59.

Another factor to consider is the cost difference between a PRSA and a BOB. A PRSA is generally more expensive than a BOB due to additional regulatory and reporting requirements. For smaller PRSAs, the fees may be higher – but it is possible to find more favorable fees for larger systems.

Other areas I regularly get asked about are investment options and death benefits. The range of investment options under a PRSA and a BOB are similar and generally allow the same range of investments in funds, stocks and property. For death benefits, a PRSA and a BOB will pay your estate the full value of your plan on death, provided there is no other occupational plan related to your employment at the time of death .

It is important to seek financial advice to fully assess which transfer option would best suit you and your needs.

A financial advisor can also help you set up a new retirement plan and work with the new provider to ensure assets are transferred efficiently.

Bringing the British pension home

Q I’m Irish, but left Ireland about 15 years ago to live and work in the UK. I will be returning to Ireland for good shortly as I have accepted a job in Ireland. I have a private defined contribution (DC) pension through my current UK employer. I will be able to join a DC pension scheme with my new Irish employer – once I have worked there for at least six months. I am considering transferring the benefits accrued in my UK pension to the pension scheme I need to join when I return. Is it a good idea? Sean, London

A As a first step, check with the UK employers’ scheme administrators that they are willing – and able – to transfer benefits to a foreign pension scheme. As the scheme is a private DC pension, it should be possible to transfer the pension to Ireland. Second, to facilitate the smooth transfer of pension benefits, assets must be liquid – as in our experience, illiquid assets can be very difficult to transfer.

If you are transferring your UK pension to Ireland, the beneficiary pension scheme must be a Recognized Qualifying Overseas Pension Scheme (QROPS). Simply put, a QROPS is a pension that can receive a transfer from a UK tax-free pension. A QROPS here offers flexibility, tax and investment benefits for UK pensioners like you looking to relocate. There are, however, certain investment restrictions that follow the British advantage, such as not being able to invest in residential property.

You will need to ask your new employer if the DC pension scheme in Ireland is registered as QROPS. If so, you should be able to ask the UK trustees to transfer the pension benefits to him. However, if this is not the case, there are a number of pension providers who offer QROPS who might accept such a transfer. If you are considering contributing from your new job to the company pension scheme but they cannot accept your UK pension, there is no problem opening a second separate approved QROPS which can accept and allow you to invest your UK scheme.

It’s important to speak with a financial advisor who can review your situation and assess the most appropriate benefits and QROPS.

Pension plan after death

Q I am in my early 50s. I’m healthy, but my father passed away around my age, so I’m afraid the same thing could happen to me. I have a small self-directed pension plan (SSAS) through work. In the unfortunate event that I die before retirement, what will happen to my pension plan? Enda, Dublin

A If you die before retirement, the distribution of funds from an SSAS will depend on whether the benefits are considered active or preserved.

In the case of active benefits (i.e. where the member was an active contributor to the SSAS before death), upon the death of the member, the fund is liquidated.

A lump sum equal to four times the member’s end-of-career salary – plus the value of any personal contributions made by the member to SSAS – is paid according to the rules of the scheme to the estate.

Any remaining excess is used to purchase annuities for the member’s dependent(s). Any balance in the fund thereafter is returned to the employer as a refund of contributions.

The recently introduced Finance Act 2021 allows the member’s dependents to purchase an Approved Retirement Fund (ARF) rather than an annuity in these circumstances – which is a welcome development.

However, with preserved benefits (where the insured has left employment or is no longer an active contributor to the scheme and has not yet received a pension benefit), in the event of death before retirement, the full value of the fund is liquidated and paid to the domain.

If the fund is no longer active (i.e. you are no longer actively contributing), you and your financial advisor should consider keeping it or ‘freeing it up’ to protect against the risk of being limited at a lump sum. four times the last salary upon death.

For example, if he is not released, with a fund value of €1.5 million and an end-of-career salary of €50,000, the lump sum will only be €200,000 – the balance being used to purchase annuities/ARFs and/or be reimbursed to the company.

Alternatively, depending on your situation, it may be appropriate to transfer the benefits to a PRSA or a buy-back obligation.

Now is the time to discuss with your financial and legal advisors how your retirement benefits will be handled upon your death and what steps you need to take to ensure your intentions are followed.

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