Moving Pension Plan - Options

Hi,

Have recently moved company and have a pension with the previous company that has a current fund value of 81K.

Have joined the new pension scheme with new employer (with a different provider) and between employer and personal contributions contribute 20% on salary of 88K.

I have been given 4 options by New Ireland;
1) Leave the pension to be payable at 65 (I’m 37)
2) Transfer to similarly approved scheme with new employer (assume eligible for this)
3) Transfer to personal retirement bond in my own name
4) Transfer to a PRSA

With options 1 and 2, is it the case that if they remain separate you can draw down some of the benefits at different times and the main disadvantage is that there is just two sets of paperwork you get from each provider each year? Any other advantages or disadvantages?

I don’t know a huge amount about options 3&4, but should I be looking more at these (not really interested in managing my own fund which I believe option 3 pertains to).
Any advice on the advantages or pitfalls of any of the above options?

Also, the statement of reasonable projection suggests a fund value of approx. 500K by retirement, giving annual pension of approx. 15K – does this appear to be quite low based on the level of contributions and hence should I be looking at doing an AVC also.

Thanks in advance for what is always great input and advice!

Presumably the Statement of Reasonable Projection with a future value of €500,000 refers to your pension fund from your previous employer?

There should be a section with 'Assumed Future Contributions' and there will probably be €0.00 entered there as there will be no further contributions to this particular fund. You will be making contributions to a new scheme as you say with your present employer, but the Statement does not take this into account.

This Statement is then probably a frozen in time look at the future value of a fund that is currently worth €81,000 which will have no further contributions to it between now and retirement age and will grow based on the investment returns between now and retirement age.

A fund future value of €500,000, with a present value of €81,000 with 28 years left to run (assuming a retirement age of 65), implies a nominal return of 6.71% approx. which would be reasonable enough assumptions. The Statement should state the return assumption.

The fund value of €500,000 is the value of the fund in the year 2049. The €15k pa is also in 2049 money.

Your statement should also have an inflation assumption stated and also what these amounts (€500k & €15k) represent in today's terms to give you a better feel for the purchasing power of these amounts.

Hi,

Thanks for the reply.

Projected fund value of the old pension (with a current value of 81K) is 171K, which would give a pension of €6,470 per annum.

The new pension has a projected value of 500K, giving a pension of approx 15K per annum. There has been literally one contribution to the new pension, so am wondering if this projection is likely to change much over the coming months/years.
So I’m wondering if I should transfer the 81K into the new pension.

Difficult to know what level of income you would need in retirement, but 21,500 per annum doesn’t sound massive (not counting state pension as may not exist in 28 years time!

Thanks for clarifying that the Statement relates to your new pension arrangement.

A fund value of €500k (which I presume is in today's terms) does look low based on a back-of-the-envelope tally of the figures if I assume the following:

- 28-yr horizon;
- Monthly contribution of €1,467 (€88k x 20% / 12);
- 6% nominal investment return; (this will of course depend on how allocated your fund is towards risk assets but 6% is reasonable given the horizon you have)
- 2% inflation;
- Contributions increasing @ 3% p.a.
- Annual management charge of 1% with 100% allocation.

I get much closer to the €500k figure if I assume a lower nominal return of 5% with no increase in contributions.

Can you provide the following info from the new Statement:

- retirement date;
- projected fund at retirement age;
- in today's terms the current value of the projected fund (presumably €500k from what you have already said);
- assumed future contributions (per month);
- assumed investment return;
- assumed contribution % increase per annum;
- inflation assumption;
- charges.

Ascertaining the charges from your new Statement will help you decide whether to move your old pension over to the new scheme or not.

How do the charges compare with the old scheme you are in? You will find the charge for the old scheme on the Statement of Projection you received when you left the old job.

Also, is there any difference in the asset allocation of the new vs old i.e. are they both similarly invested in the same proportion in equities, bonds, property etc.?

Hi AAA,

Your assumptions on contributions etc are spot on.

on the old pension, the wording on the charges is ‘the deductions for charges have the same effect as reducing the assumed investment return from 3.1% to 2.7%’ under the new scheme,the membership booklet states that the company meets the admin and any other costs associated with operating the plan. The costs of investing your retirement account are met by a deduction from the assets in which your retirement account is invested...another area of the statement the says it will range from 0.1% to 1%!

assumes salary and contribution increase of 2.5% per annum. Retirement date of 2048. Why it appears to be low is due to modelling 3 scenarios for anticipated investment growth of 1%, 2.75% and 4.5%. Which seems to be very conservative on a fund with a risk rating of 5/7 with 0.4% in cash and the rest in equities/bonds. Fund has growth of 8.3% over past 7years (Aspire Moderate Growth Portfolio).

looks like it’s purely driven by very conservative growth projections?

The projected rates of return that can be used are capped by restrictions set out by the Society of Actuaries. The currents caps are:
Equites & property - 4.5%
Bonds - 1%
Cash - 0%
They’ve just recently been updated with the last revision having happened back in 2016.