I’m in possession of numerous pensions deriving from various jobs I’ve had, each entrusted to separate managers. A portion of these funds is committed to a personal retirement bond, accessible to me (though I’m uncertain of the exact legal phrasing) when I reached the age of 50.
The bond constitutes less than a fifth of my total pension savings, and I’m inclined to withdraw the complete amount as a lump sum to decrease my mortgage. However, Irish Life, the manager of the bond, provides the alternative of obtaining a mere quarter of it as a lump sum, offering no flexibility or engagement regarding my complete pension savings.
I’m in a quandary, wondering if it’s requisite to organise all my pensions under a single manager or product to fulfil my objective.
This bears significance as the traditional view of ‘a job for life’ has become a thing of the past. It is becoming typical for people to work for a myriad of employers through their working life, sometimes even concurrently as part of a portfolio career.
This condition significantly affects pension plans.
While working for an employer, one is obligated to invest in their offered pension scheme. However, once an individual terminates their job, numerous possibilities emerge regarding their accumulated pension benefits, particularly within a defined contribution scheme.
Firstly, one has the option to leave their pension intact. Despite the absence of further contributions from both the employer and employee, the funds continue to be invested. However, it requires confirmation and it will be available for withdrawal upon retirement or other circumstances in line with the pension fund’s stipulations.
It’s crucial for employees to be wary of their various pension entitlements. There’s an overwhelming number of unclaimed pensions simply due to individuals losing count of their entitlements. It’s advisable to maintain information including details of the companies where pension savings have been acquired, and the period of employment. It would be beneficial to record particulars including employee numbers, pension scheme details, the scheme manager, and any change of personal details such as name following marriage or other reasons.
Being thorough with these specifics may facilitate the task of reclaiming your rightfully deserved funds, particularly if the lookback period spans over 30 years or so.
Secondly, the rules and regulations of different pension funds typically provide leeway for accrued pension funds to be transferred to your new employer’s fund. This can be a neat solution, however its suitability largely depends on the specifics of the schemes, the ways they are invested, their charges and how this compares to the fund management at the previous workplace. It’s advised to thoroughly examine the advantages of both pension plans before making any rash decisions.
Moreover, you can request the trustees of your employer’s occupational pension scheme to commit your earned entitlements to a pension bond, also known as a personal retirement bond, transfer bond or buyout bond – an example of why pensions can perplex people. These bonds are specifically designed to ensure the portability of pensions for individuals moving jobs, or even in moments of career breaks.
The primary advantage of pension bonds is that they offer increased control over your pension funds. You make the decisions on how the funds are invested as opposed to being reliant on the offerings of your previous employer’s scheme. However, there is a cost associated with this increased level of control.
Whether you take this route is entirely up to you. Generally, this action is not taken unless you consciously decide to do so. It’s beneficial to examine the terms and conditions of your current workplace scheme before leaving, and to communicate your desired action to your pension fund trustees. In some cases, if the scheme has not heard from you within a certain period post leaving employment, they may default to a bond investment. This is confirmed by your existing pension scheme regulations.
In some instances, transferring your retirement savings to a bond may be required because the previous scheme is closing down. Across a four-decade career, it’s likely you’ll encounter companies that no longer exist or whose schemes have closed down for various reasons. Trustees are legally obligated to secure the benefits earned within a pension scheme. If the scheme is wrapping up for any reason, your benefits might well be transferred to a personal retirement bond.
Ordinarily, relevant parties would make efforts to contact you prior to making any decisions, however, not everyone updates their address with pension fund managers or trustees when they relocate. Indeed, it’s probable that few consider this necessary when moving home.
If you choose to take out personal retirement bonds, further choices will present themselves. You can transfer these funds to a subsequent employer’s scheme or shift the bond to a new provider. However, each time you change employers and opt for this, a separate buyout bond will need to be established.
A significant positive is the customisation of your investment strategy. You decide where and how to invest, adjusting your strategy as you wish, and controlling the level of risk you are comfortable with, rather than being restricted to the options provided by your current or past employers.
On the down side, this option comes with numerous costs. Initially, it would be prudent to seek advice from a financial consultant before finalising your investment strategy, and this service does come with a price. Following that, there would be ongoing charges from whoever is managing the fund to oversee your bond’s investment. It is worth noting that these charges typically reduce with bigger funds compared to the bespoke one-person operations of personal retirement bonds.
This then leads us to the particular issue of accessing these policies. Generally, access to a personal retirement bond is made available from age 50, subject to specificities put forth by the trustees of your previous occupational scheme.
Dependent on your personal choices for fund drawdown and the terms of the initial scheme, possible options are taking 25% of the bond or 1.5 times your salary as a tax-free lump sum, capped at €200,000. This cap applies to the full sum of cash drawdowns across all your pensions, not each individual one.
The remaining balance can be put into an annuity, guaranteeing annual income, or into an approved retirement fund where assets continue to be invested and income can be withdrawn overtime. The option also remains to take the funds as taxable cash.
If the circumstances and your fund permit, you can certainly opt to withdraw the entirety of your funds, but be aware that it will be subject to taxation at your prevailing, possibly higher, income tax rate. This action is generally not recommended for financial strategies. Additionally, you may discover that there may be age restrictions to withdrawing your funds.
The concerning aspect is your interpretation that Irish Life, the manager of this bond, does not communicate effectively with you. The pension sector receives considerable criticism for their complex terminology and the difficulty faced by workers in understanding pension schemes. Despite protests from the industry regarding the significant efforts – both financially and timewise – made to simplify and improve the accessibility of pensions, the notion that Irish Life or any other institution would refrain from communication is troublesome.
However, it’s possible they might not be able to supply comprehensive information about your entire pension savings if they only oversee a portion and do not have an overview of the rest. Nevertheless, they should certainly be in a position to articulate this to you.
Would consolidating all your pensions under the management of a single product or provider grant you the access you desire? Not necessarily, and it could also be an impracticality, given the different statuses of your existing pensions. Each pension scheme comes with its own set of rules regarding when benefits can be claimed, and this may not necessarily be at the age of 50. It’s crucial to review the specific rules for each of your pensions and buyout bonds.
However, merging various pension pots into a single scheme could offer advantages in cost-saving or administration control. It would be wise to seek professional counsel before undertaking such an action.
Lastly, on the topic of this bond, if the bondholder passes away prior to retirement, the bond’s value at that time is passed onto their estate and handled per their will’s conditions.