Company Pension for <1yr fixed term contract

[newirishman]

Family member is being offered a short-term (<1 years) fixed term employment contract. This is a PAYE position, which means all the benefits (like company pension contributions) apply in the same way as for non-fixed term employees.

The contract states that there is a pension scheme, and the company contributes 10% of salary into that pension scheme. (No details on the scheme, but it is fair to assume that it is a pretty run-of-the-mill DC scheme. Albeit 10% company contributes is not bad at all!)

There are specific rules for short-term membership (ie, less than 2 years) - ie, one might be required to take personal contributions out of the scheme

Refund of member contributions - pensionsauthority

In certain circumstances you may be eligible to take a refund of contributions paid into a pension arrangement. Your entitlement to a refund of contributions depends on the type of pension arrangement you have and the rules attaching to refunds of contributions.

pensionsauthority.ie

Therefore not clear what happens with the employer contributions - I have personally experienced that employer contributions will also go back to the company, meaning that the 10% above will in effect not be available.
I understand that this might depend on the pension scheme rules, but wondering if there are any specific rules clarifying this?

 

[misemoi]

Not sure on the ER contributions, but if your relative is taking it back out as < two years service, they might be getting relief at 40% and only paying 20% on taking it out so a gain of 20%.

 

[Brendan Burgess]

one might be required to take personal contributions out of the scheme

Where are you getting this from?

The legislation allows you to withdraw personal contributions but doesn't require you to do so.

Do the rules of the scheme require the EE to take them out if they leave within two years?

Brendan

 

[Brendan Burgess]

if your relative is taking it back out as < two years service, they might be getting relief at 40% and only paying 20% on taking it out so a gain of 20%.

Are they could be getting 20% relief on the way in and 40% on the way out?

 

[newirishman]

Where are you getting this from?

The legislation allows you to withdraw personal contributions but doesn't require you to do so.

Do the rules of the scheme require the EE to take them out if they leave within two years?

Brendan

That’s where I am not certain.

See e.g. https://pensionsauthority.ie/lifecycle/benefits_payable_on_leaving/refund_of_member_contributions/

“you may be obliged […] to take a refund of your own contributions”

I know that I had one case were the company took back their contribution due to less than 2 years membership.
Essentially loss of that benefit for the previous employee.

 

[newirishman]

Not sure on the ER contributions, but if your relative is taking it back out as < two years service, they might be getting relief at 40% and only paying 20% on taking it out so a gain of 20%.

That’s not bad!

 

[Brendan Burgess]

You have to look at the employment contract and pension rules not what the Pensions Authority says

 

[Persius]

When you leave the company you should get a "leaving service letter" from the pension administrators with the options. If you have less than two years pension contributions, the employer is entitled to take his contributions back. And AFAIK most employers will take their own contributions back (it happened to me).

However, if you have a deferred pension (not PRSA) from a previous employer, you could transfer it in to your new employer's scheme (assuming that they allow it). Then your contribution time from the previous pension is also counted. This could get you above the 2 years cut-off so that you could keep your employer's contributions too.

 

[GSheehy]

No details on the scheme, but it is fair to assume that it is a pretty run-of-the-mill DC scheme

So it could be a PRSA and all this is moot.

www.prsa.ie

 

[LDFerguson]

In an occupational pension scheme, if you are more than two years in the scheme when you leave you are entitled to the value of your employer's and your own contributions. Refunds are not allowed.

If you leave with less than two years scheme service, what happens depends on the rules of the particular scheme. The scheme trustee has discretion. The employer may take back the value of the employer contributions. Or they may not. It will be in the scheme rules. Ask the scheme's Financial Broker.

If you transfer the value of a a previous scheme into the current one, your years of service in the previous scheme are added to the years of service in the current scheme for the above purpose.

With a PRSA, employer contributions cannot be taken back by the employer and employee contributions cannot be taken back by the employee regardless of the length of time.

Regards,

Liam
www.FergA.com