# Can you self-manage the AVC element of an occupational pension scheme



## Fenian (13 Jan 2011)

I have a deferred pension with a previous employer some of which was funded via AVC. Does this just sit there or can I actively manage myself -instead of simply transferring to my new occupational scheme.


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## LDFerguson (14 Jan 2011)

Was it a Defined Benefit (guaranteed pension at retirement) or Defined Contribution (contributions invested into a fund with no guaranteed pension) scheme?


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## Fenian (15 Jan 2011)

Not DB - Defined Contribution + some AVCs over the years.
Thanks for replying


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## pj111 (16 Jan 2011)

Don't know if I'd share your understanding of DBs and DCs LDFerguson,  there is nothing guaranteed about a DB, just ask the workers of  Waterford Crystal! A DB is a promise of a pension rather than a  guarantee. Also Defined contribution refers to the fact that your  eventual benefits are defined by the level of contribution you have  made. In other words the more you invest the more you're likely to get  back. But with the later the money is yours, invested in asset classes  chosen by you and so long as there is a value to your investments, you  are guaranteed a pension at retirement, however big or small it might  be.

In fact it is the DB's that are dependant on your employer keeping the  scheme well funded in order that there will be sufficient resourses to  pay your pension on retirement.

Also AVCs are DC and the short answer to yur query is yes. Usually there  is plenty of scope for chosing your own asset classes. Unless you have  chosen a default stratagy from the outset, whereby the money is  automatically invested in managed funds and as you approch retirement,  the money is moved into more secure asset classes. Talk to the insurance  provider or better still an Authorised Advisor. 

_Patrick_


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## Homer (16 Jan 2011)

Fenian said:


> I have a deferred pension with a previous employer some of which was funded via AVC. Does this just sit there or can I actively manage myself -instead of simply transferring to my new occupational scheme.


 
Hi Fenian

You could take the value of your benefits and transfer the value into a personal retirement bond.  This would include some options where you could actively manage the way in which the money is invested, but these products tend to be very expensive (i.e. have very high charges as a percentage of your fund value).  You could also go for a unit linked policy with one of the life offices and decide on the general product type (e.g. managed fund, equity fund, etc.).

But a major consideration will be whether your current pension scheme is offering an unreduced transfer value.  Most DB pension schemes are currently underfunded and are applying a reduction to transfer values to reflect the level of underfunding.  

If there is currently a reduction, you will need to balance this against the risk that your scheme may not still be running by the time you reach retirement age and you could end up with a bigger reduction if the scheme is wound up before you get there.  On the other hand, if the scheme *is* fully funded you need to consider whether the return on investing the transfer value will be sufficient to replace the benefits you are giving up (in all likelihood, it will not be).  So it's not a simple decision.

Unfortunately, Revenue legislation does not permit 'split benefits' so you cannot take a transfer in respect of your AVCs and leave your defined benefit entitlement where it is.

Hope this helps.

Regards
Homer


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## Homer (17 Jan 2011)

Sorry, I just noticed that you said your scheme is DC.  Please ignore what I said about DB schemes.

Homer


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## LDFerguson (17 Jan 2011)

pj111 said:


> Don't know if I'd share your understanding of DBs and DCs LDFerguson, there is nothing guaranteed about a DB, just ask the workers of Waterford Crystal! A DB is a promise of a pension rather than a guarantee. Also Defined contribution refers to the fact that your eventual benefits are defined by the level of contribution you have made. In other words the more you invest the more you're likely to get back. But with the later the money is yours, invested in asset classes chosen by you and so long as there is a value to your investments, you are guaranteed a pension at retirement, however big or small it might be.
> 
> In fact it is the DB's that are dependant on your employer keeping the scheme well funded in order that there will be sufficient resourses to pay your pension on retirement.
> 
> ...


 
My reply wa not intended as a tex-book definition; just a one-liner to establish which type of scheme it was - Fenian understood what I meant.


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## pj111 (17 Jan 2011)

Yes but you stated that a DB pension was a guarantee pensions, not so. You also stated that a DC was not guaranteed, not so also. 

In a D.B there is no money in a fund with your name on it so you own nothing until you receive your pension benefits at retirement, if you do.

In a D.C Scheme the pension is yours from the begining, you own the funds building up in it. You can transfer, fund switch and control them, and the benefits are yours, guaranteed.  


Don't mean to be a stickler for detail but it was a fairly inaccurate statement. 

No offence meant!

_Patrick_


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## boaber (18 Jan 2011)

pj111 said:


> In a D.C Scheme the pension is yours from the begining, you own the funds building up in it. You can transfer, fund switch and control them, and the benefits are yours, guaranteed.



Afraid not pj111.  The assets in a DC Scheme are owned by the Trustees.  There is absolutely NO guarantee of the level of benefits you receive at retirement.  The amount of pension you will receive will be based on contributions paid, fund performance and annuity rates at that time.


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## LDFerguson (18 Jan 2011)

And you do receive a guarantee with a DB scheme.  If the scheme cannot honour the guarantee, that's a separate issue entirely.


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## pj111 (18 Jan 2011)

Firstly I think it best to answer Fenian’s initial question. After that I will try to address the Boaber and LDF posts. 
1) Your options are going to depend on whether or not you have at least 2 years service in the scheme for retirement benefits.
If you have less than 2 years, your options will be solely dictated by the rules of the scheme. Where the scheme provides full vested rights, you are entitled to preserved or paid up retirement benefit related to the period of service completed. So in your case (defined contribution) the benefit would be the value of contributions paid to the scheme by yourself or on your behalf during your period of membership of the scheme. Some schemes however may only provide scaled or proportionate vested rights in relation to benefits secured by your employer, contributions (if there were any). For example no rights if less than a year, 50% rights if between 1 and 2 years service.
You can leave the benefits in the scheme or the trustee may be able to pay a transfer in lieu of the preserved benefit.
You may have the option to transfer value of equivalent actuarial value to the preserved benefit, paid in lieu of the preserved benefit to either
a) An occupational pension scheme
b) A buy out bond  or
c) PRSA
You may also be able to take a refund of your contributions to the scheme or your AVC. However if you did do this you may lose any benefits paid by the employer and the contributions would be subject to a deduction of tax. Or you could transfer these into a PRSA and avoid the tax deduction.
2) If you leave employment with more than 2 years of service in a DC scheme for retirement benefits, the preserved benefits are the benefits secured by all contributions paid by your employer and yourself. So again, you can take them in the same manner as above but you can only transfer into a PRSA if you have less than 15 years in the scheme. 

3) A transfer to a PRSA or a Buy Out Bond will allow you to manage your money and decide what funds you wish to invest in, within the range of fund options offered by the provider you choose. The portion of your contributions that are currently in your AVC can be managed by you at anytime. 

4) However there are a number of issues you need to consider when deciding whether or not to you want to maintain your preserved benefits or transfer to another pension arrangement. For this I suggest you get advice.

_Patrick_


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## pj111 (18 Jan 2011)

boaber said:


> Afraid not pj111. The assets in a DC Scheme are owned by the Trustees. There is absolutely NO guarantee of the level of benefits you receive at retirement. The amount of pension you will receive will be based on contributions paid, fund performance and annuity rates at that time.


 
The assets in an occupational pension scheme are not owned by the scheme trustees. 
When the scheme is first set up, a trust arrangement must be put in place to keep the scheme assets separate from the business assets. They are responsible for controlling the assets of the scheme, collecting and investing the contributions and for paying benefits is accordance with the scheme rules. 
Individual members have their own investment account, so this along with having more than 2 years service means that the benefits are owned by you, even if controlled by the trustees. It is because they are owned by the individual member that I stated that they are guaranteed to be yours. 
You are right however in saying that there is no guarantee of the LEVEL of benefits, but this is a different thing entirely and I did state in my previous post “however big or small it might be” referring to the eventual level of benefits one may or may not be left with.​This will of course depend on:
1) The number and level of contributions made
2) The returns achieved by the investments
3) The term of the pension
4) Charges deducted
5) Whatever annuity rates you secure at the time of retirement.
_Patrick_


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## pj111 (18 Jan 2011)

LDFerguson said:


> And you do receive a guarantee with a DB scheme. If the scheme cannot honour the guarantee, that's a separate issue entirely.


 
The reason I would not use the term guarantee and prefer to use the word promise is that the guarantee is only as good as the schemes ability to pay. And if the scheme is under funded, the ability to pay is compromised. If the scheme remains under funded how good is the guarantee? It is important to point out that at the present time a worryingly large number of schemes are underfunded. Worst case senario in a DB scheme is you end up with nothing.

Perhaps the reason why the term quarenteed pension is often used is because we associate DB schemes with the public and civil service, where the employer is the Irish State and therefore the perception is that the promise will always be honoured.

Prior to the recent bailout the question as to whether or not the state could continue to pay civil servant salaries, never mind pensions was a very real concern and has not utterly subsided even yet.

Therefore I feel the use of the word guaratee is a bit cavalier when offering advise on this topic.

_Patrick_


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## boaber (19 Jan 2011)

pj111 said:


> The assets in an occupational pension scheme are not owned by the scheme trustees.



The following is The Pension Board's definition of a Trustee:



> An individual or a company which alone or jointly becomes the legal owner of property to be administered for the benefit of someone else (the beneficiaries), in accordance with the provisions of the document creating the trust and the provisions of trust law generally and the Pensions Act.


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## pj111 (19 Jan 2011)

I see where you have taken that from. In the case of an executive pension arrangement, the owner is the trustee. However as you stated above, in an occupational pension scheme arrangement he adminisiters the benefits for someone else. 

The pensions board also states: 
Company pension schemes
A pension scheme is a type of _trust _and a _company pension scheme _(often called an _occupational pension scheme_) is a good example of one. In its simplest form, a _trust _is an arrangement under which
assets are held and looked after on behalf of others (called _beneficiaries_).

A person who holds and looks after pension assets for the benefit of _members _and their _dependants _is called a _trustee_. *Although assets **are held in the name of the trustees**, **they do not belong to them!!!*

_Patrick_


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## pj111 (19 Jan 2011)

pj111 said:


> Firstly I think it best to answer Fenian’s initial question. After that I will try to address the Boaber and LDF posts.
> 1) Your options are going to depend on whether or not you have at least 2 years service in the scheme for retirement benefits.
> If you have less than 2 years, your options will be solely dictated by the rules of the scheme. Where the scheme provides full vested rights, you are entitled to preserved or paid up retirement benefit related to the period of service completed. So in your case (defined contribution) the benefit would be the value of contributions paid to the scheme by yourself or on your behalf during your period of membership of the scheme. Some schemes however may only provide scaled or proportionate vested rights in relation to benefits secured by your employer, contributions (if there were any). For example no rights if less than a year, 50% rights if between 1 and 2 years service.
> You can leave the benefits in the scheme or the trustee may be able to pay a transfer in lieu of the preserved benefit.
> ...


 
Just noticed that you are DB Scheme and not DC scheme so you should pay great attention as to whether a transfer payment would or would not be in your best interests. You need to figure out what target investment return will the new arrangement have to produce in order to produce the same preserved benefits you would be entitled to in the DB scheme. It's more likey that transfering these benefits will not yeild the same return as your DB arrangement. Also if your thinking about moving your DB to another DB you want to see that the new scheme is offering as good terms as the old one. Nonetheless, the above options are open to you. You really need to get independant advice.

_Patrick_


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## boaber (19 Jan 2011)

I can see that I'm got going to change your opinion, but maybe these links can?



> For example, in a trust based occupational pension scheme, the Official Assignee cannot gain access to the funds since the *trustee *(not the bankrupt member) is the legal *owner* of the assets in the trust.


  Source: 




> The trustee’s role is to oversee the pension scheme. They are required to act prudently and in the best financial interest of the beneficiaries. *The trustee is also the legal owner of the assets*.


  Source: [broken link removed]




> The PRSA contributor is the owner of the PRSA assets – unlike an occupational pension scheme, where the *trustee is the legal owner*


 Source: [broken link removed]




> *ASSETS*
> The property, investments, cash and other items of which the *trustees of a pension scheme are the legal owners*.


 Source: [broken link removed]


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## LDFerguson (19 Jan 2011)

pj111 said:


> Therefore I feel the use of the word guaratee _[sic] _is a bit cavalier when offering advise _[sic]_ on this topic.




In the context that I used it, I was not offering advice.  

But anyway...



pj111 said:


> The reason I would not use the term guarantee and prefer to use the word promise...


 
A DB scheme does offer a guarantee.  The scheme may or may not be able to honour that guarantee.  

Tracker Bonds usually offer a guaranteed minimum return. The issuer may or may not be able to honour the guarantees.  

The Irish Government introduced the Deposit Guarantee Scheme.  It may or may not be able to honour such guarantees if called upon.  

The use of the word guarantee is still correct.


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## Fenian (2 Dec 2011)

Can I ask you both if you are aware of the QROPS now being extended to Irish overseas - so for example - Malta has approved funds and Ireland now allows QROPS which means I could transfer the whole lot out, avoid the levy and selfmanage or take all in cash. Wildy exaggerated or am I badly advised


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