# What to do with pension after I leave PAYE employment?



## homeowner (31 May 2012)

I am relatively clueless about pensions so I do apologise if this is a stupid question.
I am 40 and going to be leaving PAYE employment within the next year.
I will either be a stay at home mum or might set up as a sole trader at some point in the future.
I will not be paying anything further into the pension scheme.
The fund has about 75K at present.
It’s the standard company pension scheme with Mercer capital so after the fees are taken out it is not increasing by much, in fact my companies contribution payments are probably hiding the poor performance of the funds (I don’t look at the details just the balance they send me periodically).
Once I leave PAYE employment I am certain that the balance is going to start going down as the annual fees are going to eat into the balance.
I like to play things safe and want to protect the 75K balance. I am not trying to gain stellar performance.  
I noticed that through the post office you can invest in government bonds yielding 40% tax free after 10 years.
If the 75K was invested and left for 20 years, it would return 4% per year tax free which as far as I can tell is way above the performance of my pension.  I will be 60 by then and have a lump sum of in the region of E147K.
Is there any way I can take the money out of my pension when I leave work, tax free and put it into government bonds where I am guaranteed a return after 20 years, or is this a stupid idea?  
Is 4% per anum tax free a really poor return for a pension?


----------



## huskerdu (31 May 2012)

In short, no you cannot withdraw your pension fund and buy government bonds.

Here is a useful booket from the Pensions Board about what you can do with your pension fund. 

[broken link removed]


----------



## LDFerguson (1 Jun 2012)

I'm assuming that your pension fund is in an Occupational Pension Scheme as distinct from a PRSA.  

When you leave your employment, you can transfer the fund into a Buy-Out Bond - a pension policy of your own choosing that allows you to decide (and change) what your fund invests in.  You should get advice about your choices at that time, but if you decide that you want to buy Government bonds or other fixed interest securities, you can do so within a Buy-Out Bond.  Your money is still within a pension framework so you can't access it until retirement, but you can at least decide how it's invested.


----------



## homeowner (1 Jun 2012)

LDFerguson said:


> I'm assuming that your pension fund is in an Occupational Pension Scheme as distinct from a PRSA.
> 
> When you leave your employment, you can transfer the fund into a Buy-Out Bond - a pension policy of your own choosing that allows you to decide (and change) what your fund invests in.  You should get advice about your choices at that time, but if you decide that you want to buy Government bonds or other fixed interest securities, you can do so within a Buy-Out Bond.  Your money is still within a pension framework so you can't access it until retirement, but you can at least decide how it's invested.



Yeah it is in an Occupational scheme.  
Are there annual fees going this route? If I buy government bonds there will not really be any management of the pension involved and no fees directly involved.  Will I be charged a fee to basically let it sit there?


----------



## LDFerguson (1 Jun 2012)

It must stay within a pension product until you retire.  There are annual fees to the pension product provider for keeping it within an approved pension product.


----------



## Marc (3 Jun 2012)

You need to think in real terms.

If inflation averages 3%pa and you pay 1%pa in charges for your pension then you need to earn *at least* 4%pa just to stand still.

If you went to a bank *today* with €75,000 the interest you would earn would be about 2%pa net of DIRT so you could expect your pension today to provide about €1500pa on the same basis.

So you *need* your pension to grow.

You are only 40 and have two decades to allow this to happen you therefore need to invest in a mix of real assets equities property and bonds.

Mercer are doing this for you but the last decade has been poor for investment returns. But this does not imply that the next two decades will also be poor. In fact if anything we should expect that the next two decades should be good for investors in equity and property given where we are starting from and could be very poor for investors in government bonds given current low interest rates.

If you are not confident in investing you should seek professional advice for which you should really be prepared to pay a fee.

How much does 75,000 represent as a percentage of your total net worth I.e add up all your assets including your home deduct all debts including your mortgage and loans. 

This pension could represent a very large portion of your current wealth and is therefore potentially very important to you.

Just because you could move to a buy out bond does not mean that you should and one of the options that a professional adviser must consider is staying with Mercer and perhaps switching to more appropriate investment funds if this is an option.

Remember that only an adviser working for a fee can really fully consider this option as a commission based adviser *has* to sell you a new pension in order to be paid.

Marc
Chartered and Certified Financial Planner


----------



## homeowner (7 Jun 2012)

Thanks Marc and all the others for the replies.

I get your point that I need the pension to grow but I just don't have any faith in pension managers.  20 years isn't a long time, given that over the past 10 years equity gains have not been great (my funds are global equities and global emerging markets).
My parents have seen their private pensions wiped out due to being over invested in the irish banks, had they cashed out at the height of the boom they would be very comfortable, but they are now virtually dependent on the government pension to exist.  I dont want to be in the same position when I retire.

I cannot see how 75K can grow to anything substantial after fees are removed, has anyone's pension grown more than a few % year on year over the past decade?   Is there even any anecdotal evidence of pension funds that are giving good returns?


----------



## Marc (7 Jun 2012)

I can understand that you would be concerned given events of the last decade.

However, there are many investors around the world who did not bet on the Irish Banks or Pension fund managers to "beat the market" 

A pension fund that was globally diversified across different asset classes and invested in index funds worked fine. 

See here for examples:

[broken link removed]

Recent performance can be found here:

[broken link removed]

A long term comparison with typical managed funds in Ireland can be found here:

[broken link removed]


----------

