# pension options on redundancy



## harza (1 Sep 2009)

Looking for advice on pension options after being made redundant. I have less than 2 years service but given that it was a redundancy scheme I got to keep both my own and the employers contributions.

I have now received a letter outlining my options –
1) transfer value of fund to new employer scheme. This is not applicable at present. 
2) leave fund with previous employer 
3) transfer into PRSA
4) transfer into a personal retirement bond (PRB)
5) Get a refund of my own contributions minus 20% tax

I had thought I would be able to get refund on both my own and the employers contributions but this does not seem to be an available option. 

Does anyone have any advice on the most attractive options from the above?

Also, can I take the refund of my own contributions and then choose one of the other options for the employer contributions?


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## LDFerguson (1 Sep 2009)

I wrote a piece recently on the various options.  You can read it [broken link removed]. 

If you choose to take a refund of your own contributions, your employer gets a refund of theirs.  You cannot take a refund and keep the employer contributions.  For this reason, option (5) is the least attractive from a long-term perspective, although it's the only one that puts money in your hand now, if that's important.  

Liam D. Ferguson


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## harza (2 Sep 2009)

Thanks Liam.

Not willing to give up the employer contributions so won't be picking option (5). Given that option (1) is not applicable my choices are getting smaller!

Of the remaining options it seems there is no advantage to a PRSA or PRB over leaving the fund with my previous employer. So is it fair to say that this leaving the fund with my previous employer is the logical choice?


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## LDFerguson (3 Sep 2009)

harza said:


> Of the remaining options it seems there is no advantage to a PRSA or PRB over leaving the fund with my previous employer.


 
I wouldn't agree. A PRSA offers you a wider range of options at retirement. 

A PRSA or a PRB allows you to choose your own provider and fund(s) and change such choices at will. If you leave the fund in the scheme you're stuck with the provider the scheme trustees choose. 

A PRSA or PRB allows you to sever your ties with the scheme. If you leave your fund in the scheme you'll need to maintain ongoing contact with the scheme trustees until retirement, as the trustees need to co-sign any transactions concerning the fund up to and including when you want to draw your benefits at retirement.


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## Grizzly (4 Sep 2009)

If the value of your fund is now less than the combined contributions of both yourself and your employer is it possible to take the value of your fund without any clawback of tax?  Based on the fact that you are aged over 50 and you have been made redundant?


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## huskerdu (4 Sep 2009)

Is it possible to leave the fund with the previous emplyer with an option to transfer to a new employer in the future. 

If so, it is definitely the logical choice as you can deciee on a better home for it when your short term and long term career plans become clearer.


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## LDFerguson (4 Sep 2009)

Grizzly said:


> If the value of your fund is now less than the combined contributions of both yourself and your employer is it possible to take the value of your fund without any clawback of tax? Based on the fact that you are aged over 50 and you have been made redundant?


 
If you are over 50 and have benefits in an Occupational Pension Scheme, you can take early retirement with the agreement of the scheme trustees.  You will generally get a tax-free lump sum and the balance (if any) in the form of an annuity (guaranteed pension for life) and/or possibly an Approved Retirement Fund (ARF).  Income from an annuity or an ARF will be assessable for Income Tax.  The value of the fund won't change that.  

Liam D. Ferguson


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## LDFerguson (4 Sep 2009)

huskerdu said:


> Is it possible to leave the fund with the previous emplyer with an option to transfer to a new employer in the future.
> 
> If so, it is definitely the logical choice as you can deciee on a better home for it when your short term and long term career plans become clearer.


 
Yes, it's possible to leave the fund in the previous employer's scheme and transfer it to a future employer's scheme later.  You can also transfer from a PRSA or a PRB into a future employer's scheme later.  So that's not an advantage of any one option over another. 

Besides, it's not always advantageous to transfer into a new employer's scheme as you automatically transfer in service etc.


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## SlugBreath (5 Sep 2009)

LDFerguson said:


> If you are over 50 and have benefits in an Occupational Pension Scheme, you can take early retirement with the agreement of the scheme trustees. You will generally get a tax-free lump sum and the balance (if any) in the form of an annuity (guaranteed pension for life) and/or possibly an Approved Retirement Fund (ARF). Income from an annuity or an ARF will be assessable for Income Tax. The value of the fund won't change that.
> 
> Liam D. Ferguson


 
Can the tax free lump sum be equivalent to the value of the fund ever?


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## harza (8 Sep 2009)

> I wouldn't agree. A PRSA offers you a wider range of options at retirement.
> 
> A PRSA or a PRB allows you to choose your own provider and fund(s) and change such choices at will. If you leave the fund in the scheme you're stuck with the provider the scheme trustees choose.
> 
> A PRSA or PRB allows you to sever your ties with the scheme. If you leave your fund in the scheme you'll need to maintain ongoing contact with the scheme trustees until retirement, as the trustees need to co-sign any transactions concerning the fund up to and including when you want to draw your benefits at retirement.


 
Liam,

Thanks for your response. A few follow on questions -

1) My letter says as the value of my fund is less than €10,000 I can transfer to a PRSA. However, this is incorrect as the value of the fund is greater than €10,000. Does a PRSA become less attractive given that the fund is over €10,000? 

2) My 'normal retirment age' is 60. However, the PRB refers to surrendering the PRB at any age after 50. Is this an advantage of a PRB in that I will get access 10 years earlier than with a PRSA? The option of leaving the pension in my employers fund also states that I can draw on it after age 50.

3) Does after age 50 mean 50 years and 1 day or 51 years?


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## LDFerguson (10 Sep 2009)

SlugBreath said:


> Can the tax free lump sum be equivalent to the value of the fund ever?


 
Yes - the calculation of maximum tax-free lump sum for an employee in an Occupational Pension Scheme involves years of service and salary at retirement, so it can happen that this calculation allows for a lump sum that is the size of (or greater than) the fund available.  If so, you can take the whole fund out as a tax-free lump sum.


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## LDFerguson (10 Sep 2009)

harza said:


> 1) My letter says as the value of my fund is less than €10,000 I can transfer to a PRSA. However, this is incorrect as the value of the fund is greater than €10,000. Does a PRSA become less attractive given that the fund is over €10,000?


 
The PRSA remains the same, but if the fund is greater than €10,000 you need to produce a Certificate of Benefits Comparison from a suitably qualified actuary before you can transfer into a PRSA. Actuary we work with charges 1% of the fund value for this, minimum €500, maximum €2,000. 



harza said:


> 2) My 'normal retirment age' is 60. However, the PRB refers to surrendering the PRB at any age after 50. Is this an advantage of a PRB in that I will get access 10 years earlier than with a PRSA? The option of leaving the pension in my employers fund also states that I can draw on it after age 50.


 
You can retire from a PRB from age 50 with no restrictions. You can retire from an Occupational Pension Scheme from 50 if the scheme trustees agree to it. You can retire from 50 with a PRSA if you are simultaneously retiring from PAYE employment at that time. 



harza said:


> 3) Does after age 50 mean 50 years and 1 day or 51 years?


 
On or after the day of your 50th birthday. You can start filling out the retirement forms through a hung-over haze on the morning after your 50th birthday party.


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## Guest128 (17 Sep 2009)

That wont work, you must be in the original company for the entire vesting period to get the original employers contribution. You cannot combine vesting periods over two employers or pension schemes


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## LDFerguson (22 Sep 2009)

FLANDERS` said:


> That wont work, you must be in the original company for the entire vesting period to get the original employers contribution. You cannot combine vesting periods over two employers or pension schemes


 
What won't work?


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## IsleOfMan (22 Sep 2009)

LDFerguson said:


> Yes - the calculation of maximum tax-free lump sum for an employee in an Occupational Pension Scheme involves years of service and salary at retirement, so it can happen that this calculation allows for a lump sum that is the size of (or greater than) the fund available. If so, you can take the whole fund out as a tax-free lump sum.


 
Thanks LD. Several emails to Mercer and I could not get this information.


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## Guest128 (22 Sep 2009)

LDFerguson said:


> What won't work?



Don't know how that got into this thread, I posted that in reply to someone asking if they could combine their time spent in 2 pensions schemes to cover the vesting period of their original pension, since they were about to lose the employer contribution.


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## HMC (30 Sep 2009)

LDFerguson said:


> I wrote a piece recently on the various options. You can read it [broken link removed].
> 
> If you choose to take a refund of your own contributions, your employer gets a refund of theirs. You cannot take a refund and keep the employer contributions. For this reason, option (5) is the least attractive from a long-term perspective, although it's the only one that puts money in your hand now, if that's important.
> 
> Liam D. Ferguson


 
Dear Liam,
A former employer is winding up its pension scheme and I have been given the same options as the OP.  However, I left my job to go to college and am now in my final year at university. I would like to take the cash option but am wondering whether I am liable for the full 20% tax since I have no other income?
Many thanks
HMC


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## LDFerguson (30 Sep 2009)

I'm afraid so.  Tax is deducted from refunds of employee contributions regardless of your tax position now.


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## Barney Magoo (13 Oct 2009)

Going through LDFerguson's excellent after redundancy pension options  link, above, I notice that PRSA transfer is not allowed for those with more than 15 years pensionable service. Can anyone tell me why this is the case and why 15 years?
Also if one chooses to transfer the fund value out of the ex-company DB scheme to a BOB does this mean that an annuity has to be purchased when  retirement age is reached or can an ARF/AMRF be chosen instead?


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## sparkeee (13 Oct 2009)

by the time we get to retire all state pensions will be means tested,you will be no better off than the fella who never worked or paid into a private pension scheme,your better off investing that pension money in property or beer or holidays.


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## LDFerguson (14 Oct 2009)

Barney Magoo said:


> Going through LDFerguson's excellent after redundancy pension options link, above, I notice that PRSA transfer is not allowed for those with more than 15 years pensionable service. Can anyone tell me why this is the case and why 15 years?


 
When the powers that be were setting out the rules for PRSAs they were worried that people would be badly advised to transfer from superior pension schemes to PRSAs just to generate commission for the PRSA salesman.  This happened in the UK and it took years to unravel the mis-selling.  So they laid out rules governing transfers from schemes to PRSAs and one of them is the 15 year one.  



Barney Magoo said:


> Also if one chooses to transfer the fund value out of the ex-company DB scheme to a BOB does this mean that an annuity has to be purchased when retirement age is reached or can an ARF/AMRF be chosen instead?


 
The rules governing how you can take your benefits from a BOB are the same as the rules governing retirement from the original scheme.  So unless you were a 5% director of the original employer, you won't have the ARF/AMRF options at retirement, except in respect of any funds you accumulated through AVCs.  

Cheers, Liam


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## LDFerguson (14 Oct 2009)

sparkeee said:


> by the time we get to retire all state pensions will be means tested,you will be no better off than the fella who never worked or paid into a private pension scheme,your better off investing that pension money in property or beer or holidays.


 
If things get to the point that the State Contributory Pension has to be means tested, they will have reduced the amount of it first. 

You've just convinced me even more to pump money into my private pension - I don't want to relying on €100 per week or whatever they reduce it to.


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## Barney Magoo (14 Oct 2009)

Thanks for the explanation Liam. 
I suppose my concern is that the goalposts have moved significantly since the original rules on PRSAs were introduced. There is a perception that PRSAs are more flexible than options that must purchase annuities, not least in terms of the value to the persons estate after death. 
Also, when interest rates are as low as they are now, and likely to be for a while.  the value to the pensioner from a (locked in) annuity purchase can be almost derisory. Surely it is time for more flexibility on what people can do with their pension pot?


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## LDFerguson (14 Oct 2009)

Barney Magoo said:


> ...the value to the pensioner from a (locked in) annuity purchase can be almost derisory. Surely it is time for more flexibility on what people can do with their pension pot?


 
I agree fully.  ARF options should be available to all, except those in Defined Benefit schemes, in my opinion.  I know this has been discussed between Revenue, Pensions Board and Government but I don't know how close we are to seeing it a reailty.


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## harza (22 Oct 2009)

Liam,

Being doing some more looking into this. At present the value of the pension is just over €10,000. Given that I would have to pay approx €500 (5%) to move to a PRSA am I better of opting to stay in employer scheme?

Am I right to think that I can move to a PRSA or PRB at a later stage when I start making pension payments again? 

Keeping in contact with former employer's pension trustees would not be an issue as I am happy to not change funds and the only correspondence to date has been an annual statement.


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