Case study buy-out bond options. Help please

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DesRez

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Hi, very longterm website follower, first post, go easy! We are doing the research at the moment and interested in peoples thoughts/suggestions.

My better half is approaching 50 in 2 months. She worked from 18 to 32 years old and retired from the workforce 18 years ago.

She stuck her pension pot into an Eagle Star Tran pension plan (Zurich) PensionStar/Rainbow route to retirement buyout bond. For clarity - she advised me to say that while she retired she actually raised our 3 sons and actually never stopped "working".

- Original investment into bond €13k (2003)
- Current transfer value just shy of €45k (april 20).

The fund allows retirement at 50 and we want to identify all the options for the pot and ultimately decide what is the best one for us.

Our understanding is we can take a percentage out tax free (25%?) if we so wish and must then reinvest the balance?. We may take the 25% to clear the FV on a PCP as she will keep the car.

A few questions -
1) do we need to reinvest the pot until she reaches 65 or is it 67 years old?
2) if so, we assume we can we decide where to reinvest the pot?
3) what are the typical reinvestment options available, safe and more risky?
4) where is the best place to get more information on the options?
5) we assume we cant transfer the pot from her into my DB pension as AVCs? In effect reassign it to me?

Other background if its needed, we have 2 investment properties and 1 PPR; all with less than 10 yrs to run on them and I have my own DB pension.

So in short, what do we do with the pot?
happy to answer follow up questions.
All advice will be researched I appreciate people taking time to respond. Cheers DesRez
 
There are two methods of calculating the maximum lump sum. One relates to her years of service with the employer and her salary when she left. The other is a simple 25% of the fund value. I'm going to assume that the second one is the more favourable.

So she takes 25% of the fund value as a tax-free lump sum. With the remaining 75% she has two options. (1) Buy an annuity - a fixed pension for life. Not a great option as the rate she'll get at age 50 will be poor and it sounds like you don't need the income immediately. (2) Reinvest the 75% in an Approved Minimum Retirement Fund (AMRF). She can withdraw up to 4% per year from an AMRF (subject to Income Tax and levies). But she has no obligation to draw anything from it, until she either (a) acquires guaranteed lifetime income (i.e. a pension) of at least €12,700 per year elsewhere (e.g. the State Pension) or (b) turns 75.

1) do we need to reinvest the pot until she reaches 65 or is it 67 years old?
No - an AMRF exists until age 75 at which time it becomes an ARF.

2) if so, we assume we can we decide where to reinvest the pot?
You can start the AMRF with Zurich Life or any other pension company. There are even self-administered AMRFs allowing you to manage your funds, but for the amounts involved here, those are probably not a great option.

3) what are the typical reinvestment options available, safe and more risky?
The full range of pension fund choices - cash, bond, equities, property, alternatives, multi-asset funds, gold ... managed funds with varying levels of risk, index-tracking funds... the choices are many and varied.

4) where is the best place to get more information on the options?
Any Financial Broker should be well able to advise you.

5) we assume we cant transfer the pot from her into my DB pension as AVCs? In effect reassign it to me?
That's correct. Pension funds are not transferable between spouses.

Regards,

Liam
www.ferga.com
 
Hi Liam, thank you for the very detailed reply. Very helpful as im just starting to investigate this. Much Appreciated.

Thankfully we have investment properties although this is getting less appealing each year and we can see why landlords are leaving the sector. Thats another case study query for another day.

A few further questions-

1) Upon retirement in 2003 my wife's salary was eur 54k and she was employed there between nov 1989 and mid 2003. Does this still mean the 25% of the fund drawdown option is better. How is the alternative based on salary/years calculated?

2) Assuming we take out 25% you estimate the annuity option might not give a great annual return as the fund is small relative to life expectency (hopefully). I assume they just work out you are likely to live till 80 or 90 years and divide the lump by the years and then do a bit of a reduction to allow for inflation?

3) is the 4% drawdown based on the fund value each year?

4) when can you get access to the entire fund. Is is the day you get the state pension? Can you take it in a lump that day?

Again, thanks
 
David_Dublin said:
Question on withdrawing the 25%, is it up to a max of 200k?
Click to expand...

You can draw down 25% of the fund value as a lump sum. The first €200k of this amount is tax free. The next €300k is taxed at 20%.

Some people are now getting confused over the amount they can take tax free and think if they have a fund of €200k, they can take it all as a tax free lump sum. This is not the case. You need a fund of €800k to claim the €200k tax free lump sum under this method.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
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