# Deferred DB Pension - Take Pension or Transfer to ARF



## cronley (2 Apr 2014)

I am 61 years old. I have a Deferred Defined Benefit pension in a private company that I left some years ago. The company is solid & I am certain it will be there long term. The DB pension scheme is one of the lucky ones, & is well funded. I have the option of taking an annual pension, increasing each year by the Consumer Price Index or 5%, whichever is lower. I can  also take a lower joint annual pension, where my spouse would get the same pension as me for life, if I predeceased my spouse. I also have the option of taking a transfer out of the scheme, & I have got a transfer value from the company. If I took a transfer, my intention would be to put it into an ARF.
I am trying to decide whether to take annual pension, or take transfer.
Pros & Cons I see are -
Annual pension is certain long term & it has CPI inflation protection.
 Me or my spouse would have to live to about 85 before we would have drawn annual pension accumulating to the transfer value. If we both died earlier than 85, we would have got more money by taking the transfer -i.e. the transfer option would have money left for our adult kids.
The transfer option would have to invest ARF in safe vehicles like deposits or Gov Bonds. These safe investments are likely to earn less than the inflation growth in the annual pension.
The annual pension is a gamble on how long we live. With the Transfer option, we know the exact amount we have for ourselves, & our kids will benefit if we both die young. Probably more peace of mind with the annual pension - less investment worry than the Transfer option, but then Deposits & Bonds should have little worry attached.

Are there any other things I should consider. Any views on the options appreciated.


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## Steven Barrett (3 Apr 2014)

Hi Cronley

I wrote a blog on this a few months ago. 

http://www.bluewaterfp.ie/pensions-2/defined-benefit-pensions-should-i-transfer-out/


Steven
www.bluewaterfp.ie


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## Conan (3 Apr 2014)

Cronley,
In trying to decide what might be the best option you need to consider the following:
- your state of health and that of your wife. Remember that on average males retiring at say age 61 have a life expectancy of some 24 years and women can be expected to live about 4 years longer.
- what other income will you have in retirement (social welfare pension etc). If the occupational pension is your main/only income then the security of an income for life is very important.
- the advantage of the ARF route is that you have Cash in your name to draw down income as you wish, but you must draw down a minimum of 5% of the fund each year.
- on your early death (and the early death of your wife) the value of the fund can pass to your children
- going the ARF route means you have to invest the fund. That means making a decision as to the investment strategy. If you adopt a low risk approach (eg cash) then you will do well to get 1% p.a. net. Allowing for 5% drawdown that means the fund will reduce by 4% p.a. But if you want to index the drawdown (similar to what the Annuity would have paid) that will reduce the fund more quickly.
- if you want to generate a higher return, then you will need to take some investment risk.

In my experience of advising clients, I tend to concentrate on the requirement for a guaranteed income (peace of mind) versus the flexibility of an ARF. Critically it comes down to the amount of pension income that the scheme will pay, to what extent that makes up the bulk of your income in retirement and what other assets you might have in retirement that could be used to generate an income if required.

Overall it is difficult to decide just based on the numbers. It is also an emotional decision- income certainty versus flexibility. 

I would suggest that you get expert advice to at least crunch the numbers and to examine to more personal issues.


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## JoeRoberts (3 Apr 2014)

Can OP take his DB pension to an ARF ? Not sure Revenue ever confirmed this point.


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## cronley (3 Apr 2014)

Thanks Barrett & Conan - very helpful.
I think another very important consideration is that the Transfer to ARF option, may push more of your drawdown into the 41% tax bracket -e.g. if your transfer pot is 900k or over, the compulsory 5% ARF drawdown is 45K, compared to  the 41800 tax bracket at 20% this pushes 3200 into 41% tax bracket. If the annual pension payment from staying in the company scheme is 40,000 - it means more of your money is wasted in the 41% tax bracket.
For me, I think this pushes the debate in favour of staying in the scheme, instead of transferring to ARF.


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## Steven Barrett (4 Apr 2014)

JoeRoberts said:


> Can OP take his DB pension to an ARF ? Not sure Revenue ever confirmed this point.



I looked at that. He would have to leave the scheme and take a transfer value into a BOB, which he could then ARF. He wouldn't be able to take the ARF directly from the DB scheme. 

The fact is, with the crazy way that transfer values are calculated, you will never be able to replicate the benefits provided by a DB scheme managing it yourself. In all probability, you will be giving up a lot of money to be able to control your own fund. So unless you have bad health and you don't think you'll live very long, it's more beneficial to take the DB. 

...as long as it remains funded of course. With the new rules, you are no longer protected once you draw down the benefits. If the scheme is in financial trouble in the future, you may take a hit.


Steven
www.bluewaterfp.ie


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## cronley (4 Apr 2014)

...as long as it remains funded of course. With the new rules, you are no longer protected once you draw down the benefits. If the scheme is in financial trouble in the future, you may take a hit.


Steven
www.bluewaterfp.ie[/QUOTE]

Steven
Please elaborate on new rules about change in protection after draw down. I was not aware of this. Can you provide link detailing the new rules. Thanks


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## Conan (4 Apr 2014)

Cronley,
Just to be clear, if you were to transfer your DB benefits into a BOB, you cannot then transfer to an ARF ( a Revenue rule that states that the BOB must follow the DB rules so that an ARF is not an option).
In the recent Social Welfare Act the "priority rules" were changed so that if a scheme and employer became insolvent then existing pensioners (as well as current members) might be impacted by a reduction in their pension. If the pension is less than €60,000 then the maximum reduction is 10%. Over €60,000 the reduction can be 20%.
Whilst this is a risk, if your employer and the scheme is solid then the risk may be small.


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## cronley (4 Apr 2014)

Thanks Conan
If BOB is not route to ARF - if I took transfer to an SSAP - can I turn the SSAP into an ARF.
Re Priority if scheme becomes underfunded - retired pensioners used have first call on the fund, ahead of non-retired members - is this still the case, in that pensioners now may have a max reduction in their pension of 10% if pension under 60k, & what is left in the fund is made available to non-retired members - is it still the case that non-retired members may finish up with a lot less pension than retired pensioners - do retired pensioners still have the advantage.


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## Baracuda (4 Apr 2014)

Hi Cronley

 You can only transfer your pension fund into Defined Contribution Scheme to avail of ARF options. Pension transfer rules are very clear in this regard. 

 There is some talk of using BoB's to gain ARF options where you would transfer from one provider to another and hope that the new provider was not aware that the BoB originally came from a DB scheme. 

 I would not like to take that risk and lose benefits so definitely would advise against this course of action!

 So in order for you to get ARF rights, transfer to DC is your only avenue. You would need to be an active member of a DC scheme so as the scheme would be able to accept the transfer. The trustees of the scheme would also need to be in agreement to the transfer.

 With regard to new winding up rules, this article will give you more [broken link removed]


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## cronley (4 Apr 2014)

Thanks Baracuda
You say Transfer to DC scheme is the only avenue to ARF. Are you sure Transfer to SSAP is not an avenue to ARF


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## Baracuda (4 Apr 2014)

Hi Cronley

 A SSAP is a DC scheme, but when you draw down benefits you will need to set up a new and separate Self Directed ARF if you want to be the fund manager and direct what assets you invest in.

 My only concern in transferring to a SSAP and then drawing down benefits is that by using a SSAP you could incur large fees as opposed to using a single member DC insured scheme (if this option is available to you). I would certainly request a quote for both in order to make an informed decision on charges and fees.


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## JoeRoberts (4 Apr 2014)

Note the OP is 61, so while still a loss in taking TV, it is not as severe as it would be for a younger person as once he is within 10 yrs of NRA the discount rate improves with the MVA.


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## JoeRoberts (4 Apr 2014)

http://oireachtasdebates.oireachtas.ie/debates%20authoring/debateswebpack.nsf/takes/dail2014021100057?opendocument

 Interesting question and reply on the subject of ARF from a DB scheme on this link if you scroll down.
 May be worth waiting to see if anything comes out of this.


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