Well this has grown legs in the past hour. Ye are all on fire of a Friday morning
.
Admins - feel free to break this up if you think the thread has gone off topic however I will try and include an link back to the OPs original post here to aim to keep the topic on track.
So we have a 45 yr old deferred DC member with
25 years service wondering what to do with a 300K deferred benefit.
1: Remain in original scheme as a deferred member
2: TV to scheme of new ER
3: TV to PRB, or
4: TV to PRSA
Before I am pulled up on this, yes I realise I don't have the complete picture here, but my thoughts would be to consider 1 and 3 only. Reasons being:
1: The OP retains option to draw down at 50 if required (which would be lost if TV'd to PRSA or scheme of new Employer)
2: The OP retains both the salary & service and 25% route for drawdown. The PRB also has the great feature of ringfencing the TFLS now and letting that grow the aim of which is to supercharge the TFLS payable on drawdown. Given that there is 25 years service here the S&S calculation should certainly be explored at this point before any decision is made. You can always TV the PRB to the current ERs scheme at the 11th hour to maximise benefits on retirement from that scheme if necessary.
Why would I discount the current ERs scheme and the PRSA:
1: Locking in the flexibility to drawdown the 300K to retirement from the current ER or from age 60 in the case of the PRSA. Life and circumstances change. I'd keep my options open.
2: You lose the option of the salary & service route on the PRSA
3: Charges are not everything. Yes they are important but so too are the funds you invest in (albeit no one can predict the future) and, for me, understanding the nuances between the different types of pension arrangements.
4: Death in service benefits from current employment vs preserved benefits (if TV'd to scheme of current ER)
Earlier on in this thread the issue regarding early access to the PRSA arose. The question was asked to provide the legislation regarding this, which I did. To me, the legislation is very clear. It simply specifies "retirement". I was asked to provide published Revenue guidance on this. I can't as I don't have a direct email from Revenue LCD on this however I have had it confirmed to me that this issue has been clarified by Revenue to mean that a PAYE employee has to be fully retired to access early benefits from a PRSA i.e. before age 60. In the past hour Steven appears to have posted a copy of an email from I suspect is one of the PRSA providers outlining their position on this. While I can't post "evidence" for you here for anyone who has a doubt as to the meaning or interpretation of this legislation I'd suggest sending an email to the LCD section of Revenue to have your query clarified. The section of the TCA which deals with this is 787K (2) (b). From me, and I'm fully open to correction here, this section has been amended by one of the Finance Acts, where in the last 8-10 years or so the word "retirement" was inserted i.e. I don't think this wording was previously as clear cut. I don't have access to Better Regulation at the moment to check the updates of this Section but if anyone can correct me on this I'd appreciate it.
So that's the
theory part of it. In my opinion, it's pretty black and white. Does that make it reasonable? Absolutely not. Why can someone draw benefits from a PRB but not from a PRSA? Or why are PAYE workers and self employed considered differently when it comes to early retirement? Of course it makes no sense but then again there is a lot in pension legislation which doesn't make much sense at all. But those are the rules.
So now to the
practice. Are there way to circumvent these rules? Yes of course there are. Its widely known that there are differences in the way the PRSA providers deal with this. So much so that if you need to draw down PRSA benefits before age 60 you'd knowingly transfer the benefits to one particular provider. All have different wording in their PRSA retirement claim forms regarding this. Some explicitly state that you must be retired from all employments while another specifies your current job. As Oisin points out, choose your provider wisely.
What would can or would Revenue do if someone had drawdown benefits? To me it seems they have very little come back on the client. Section 787K deals with the approval of the PRSA for the PRSA provider so ultimately I think this is where the issue would arise. Would Revenue pull approval of the PRSA product if they new a provider was not abiding by the rules set out in the TCA? Who knows.
There are also a whole other host of implication to be considered here on transferring different arrangements to PRSAs. If I start teasing these out this post will never end. If some providers are most relaxed than others could certain transfers be in your interest, similarly could some catch you out? Or could a tightening of the operation of this section of the legislation be a sucker punch for some?
In terms of having to remain retired, I have never heard of this and can't see any reason why someone can't do as Clubman set out above. I'm not aware of any basis where Revenue can prevent someone from re-entering employment having drawn benefits from a PRSA between ages 50-60. It's now where in the TCA or any other Act that I'm aware of.
Just one area of Pensions rules that largely make no sense. I think we all agree there. Fingers crossed that at some point down the line Pensions Simplification gets rid of all of these little kinks and let pensions be something that we all can navigate a little easier of a sunny Friday.