Pension transfer - is there a loop hole to cash it in?

Hi,

I've recently changed jobs & have been given a few options on what to do with my ex-company pension. Ideally I would like to cash it in as there would be sufficent funds to cover my outstanding debts & I would then be in a position to start a fresh pension & make decent contributions myself. I'm nearly 30 & am now self-employed. I was in the company pension scheme for over 4 years & inclusive of employers contributions, the sum is close to €18K. The only options given to me that I can utilise are to either leave the money sit there till I reach retirement age or invest in a PRSA. However as I stated before, I would rather clear off my debts now & start a new pension where I can make sufficent contributions so I'm wondering if anybody knows of a loop hole!? Also, I have been advised that some PRSA institutions will not accept a transfer payment over €10K.

Most appreciated, ta very much!

No loophole, I'm afraid, if you were in your old employer's scheme for more than 2 years, or more than 5 years if you left before June 2002. If you were in for less than that length of time you can get a refund of your own contributions less 20% but you would lose the Employer portion of the €18k.

The problem with transferring a fund that size to a PRSA is that a comparison of benefits prepared by an actuary is required and there are no actuaries doing this work at the moment (due to lack of guidelines from the Society of Actuaries afaik).

Hi,another option you could consider is a Pension Retirement Bond.

Based on the 2 year rule mentioned above if you were to put €10,000 into a standard PRSA and assuming no return, could you close the PRSA say after 1 month, pay the 20% exit tax and take the net cash of €7,600 (10000 less 5% * 80%). This would mean you'd be €2,400 better off than if the €10,000 was put through the PAYE system (10,000 less 42% paye and 6% health/prsi) - a return of 46% (2400/5200) in 1 month! I am probably missing out on a rule somewhere that prevents this.

I thought that pension refunds were taxed at 25% not 20%?

I presume Revenue anti-avoidance rules might prevent people doing this more than once without good reason?

Aviaro,
Its just not that simple.
Firstly, "exit tax" does not apply to pension contracts. If you are an employee member of a pension scheme you can only seek a refund of your contributions if you leave the service of your employer having completed less than 2 years service. Otherwise you must opt for a Deferred Benefit.
Secondly, if you effect a PRSA you cannot encash the plan and seek a refund. The price you pay for the tax relief is that the contributions are locked-away until you retire.

yeah, employee pension refunds were taxed at 25% until a couple of years ago. Its now 20%.
If you leave with less than 2 yeas service you dont necessarily have to take the 'deferred pension' option. You can transfer the value of your personal contributions to a PRB or PRSA. However for transfer values less than €2,539.48 a PRB will not be an option.
Another option of course would be to transfer to your new employers scheme, however in this case this obviously doesn't suit.
With regards to freeing up cash from the fund I'm afraid the answer is that because you have more than 2 years pensionable service you now have a 'preserved Benefit' and can't. (Unless of course new legislation is introduced in the coming years allowing a certain degree of access to this- A real possibility!)

Thanks Conan - forgot that the "under 2 years service encashment option" only applies to occupational schemes and not RACs/PRSAs.

Thanks Ken2000 - couldn't remember if/when the tax treatment of encashments changed.

Here is my dilemma!
I have a cheque for nearly €10,000 in my grubby little hands - from my old company's pension scheme.
I was in the scheme 26 months - just 2 over the 2 years cut-off!! before I was made redundant by the company.
Is there any way I can cash this cheque? I mean it is MY money after all.
This is killing me

How did you get that cheque and who is it payable to!? Normally if you were in such a scheme for two years then the option to take a refund of personal (normal and AVC) contributions (less tax) is no longer available to you and the only options would be to leave the funds invested in the scheme, to transfer to another occupational scheme (immediately or in the future) or to transfer to a pension retirement or buy out bond. I don't understand why/how you received a cheque in respect of funds in your pension scheme. Are you sure that there is not some confusion here...?

Clubman,
Don't have the cheque YET, but my old company rang me today to say they are posting it to me. I applied a couple of months back to transfer the money from old pension to new pension scheme. I don't know either why the cheque is being sent to me directly. Obviously don't know yet who it's made out to, but presume its new pension scheme? But now the money is in my hands, do I have a chance of cashing it in??

What option did you choose on leaving the scheme? A refund of personal/AVC contrinutions net of tax? If so and you qualified for this then maybe you were working with the company for 26 months but only a member of the pension scheme for 24 or less? Otherwise I don't think that you should have qualified for a refund of contributions (unless redundancy somehow comes into this?) and to avail of it may have other (e.g. tax) implications. As far as I know, normally when a transfer is taking place the cheque is sent directly from the old pension fund to the new one (the trustees). I didn't think that the individual ever received a cheque directly. Obviously you cannot legitimately cash a cheque payable to somebody else without their permission at the very least.

Hi,
I have a pension fund value of over 50k with my previous employer(I left nearly 2 years ago after 8 years membership of pension scheme) . On leaving they gave me several buy out options etc, but I decided to take my time & did nothing. I now am thinking of transfering this amount into my new employers pension scheme with Eagle Star, but someone has said to me that I am better off leaving it as "paid up" in my old employers pension scheme(Friends First) as they will pay all the costs associated with investing the 50k & I would be subjected to high transfer costs if I switch to my new employer? I do not want to cash it in & I don't like the idea of paying any transfer costs - we work hard enough to build the pension fund! Can any body tell me what's the best thing to do please?

rco2000 said:

but someone has said to me

Click to expand...

Who? Somebody who is qualified to give advice on such matters?

that I am better off leaving it as "paid up" in my old employers pension scheme(Friends First) as they will pay all the costs associated with investing the 50k & I would be subjected to high transfer costs if I switch to my new employer?

Click to expand...

Not necessarily. You'd need to check (a) what charges apply with the existing scheme (b) what charges apply on the current employer scheme (c) what, if any, charges (or maybe even greater than 100% allocation rates which top the value up) apply on transfer (d) if you really need/want to consolidate the funds and (e) if you might be better off transferring the old fund into a buy out bond (e.g. with a BOB you stop paying the (admittedly small - c. €5) monthly policy fee that still gets levied even when not making further contributions and is paid through the encashment of units, ans also you may get a more than 100% allocation rate when transferring thus topping up your fund).

I do not want to cash it in

Click to expand...

I don't think that you can cash it in at this stage?

Can any body tell me what's the best thing to do please?

Click to expand...

In my opinion you need to talk to an independent, professional advisor who will be in a better position to apprise you of all your options and suggest the best one(s) for your specific circumstances. If you can answer the points above and post the relevant details otheres here might be able to assist.