Personal Retirement Bond/Buy Out Bond & approaching 50

D

DundrumQ

Registered User
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Hi All,

I'm 47. I moved employment 2 years ago from a position where I was a company director. I contributed to two pension funds during this employment. The value of the 2 pension funds now is about 900k. I stopped contributing to them when I left the job. Since then, the company closed down, I have online access to the 2 funds: standard life and irish life. I'm currently working on getting the 2 pension funds I contributed to converted to a Personal Retirement Bond/Buy Out Bond.

As I understand it, at the age of 50 I am entitled to take 25% of the Personal Retirement Bond/Buy Out Bond tax free, up to 200k. I would then need to transfer the remaining 75% into an ARF.

Is this something that people always do? What are the do's/dont's on this? Do people defer this decision until they really need it?

My current financial situation:
  • Mortage 1: tracker with AIB, 150k outstanding, 23 years left
  • Mortgage 2: SVR tracker with AIB, 40K remaining, 11 years left (would be 23 years if I hadn't made contributions to bring in the date)
    • this is part of the €1615 cohort, I repaid 90k last month, I'm considering asking for that back, I would not have done it if it was on the Tracker, which I'm hoping the mortgage to be moved to at the end of whatever is happening now
  • House is worth about 950k
  • Savings: 190k
  • Debts: no other debts
  • Pretty comfortable life now, 1k savings per month since I paid down the 80k on Mortgage 2
  • Want to do a job on the house - 300k estimated cost
  • I have a pension with my current employer, I contribute 4% salary which they match
Questions
  1. Is there any reason not to take the 25% tax free (approx 225k)?
  2. Is there any reason not to take it at age 50, in order that I can use some to do the big job to the house?
  3. The alternative would be to borrow to do the job and defer taking the 25% until later - is there any benefit in this, is there a better time to take the 25%?
  4. If I took the 225k at age 50, what should I do with the rest of it? Assuming I have no immediate need for it? I'd prefer to have as much in "pension" as possible - can I just push it into the ARF?
  5. I have half a mind to "invest" in a property with my pension at some stage. Part of this might be a timing thing - maybe look to buy a house that becomes available when a parent/parent in law passes in the next few years (both are elderly and infirm)
    • Is this a good idea? I'd probably need to borrow to ensure not all of my pension is absorbed into property rental. Maybe I could use the balance of the 225k as a deposit? (I'd probably be looking at letting the property to family to avoid the hassle of being a proper landlord)
Hope asking so many questions is allowed, apologies for the long winded post. I'm at early stages engaging with a financial consultant, but I would like to be as informed as possible.
 
Do both mortgages relate to your PPR? Also, what do you mean by a "SVR tracker"?

Also, are your 190k (after tax) savings just sitting on deposit?
 
Sorry, SVR not SVR tracker, Mortgage 2 is on a standard variable rate. Yes, both mortgages are on PPR, we split the mortgage 50/50 on tracker and fixed in 2008.

Yes, 190k on deposit with KBC and PTSB.
 
Thanks.

One of the big advantages of a pension wrapper is that investment income/gains can roll-up without any tax consequences. Obviously you would lose that advantage in respect of any cash lump sum that you draw from your pension pot early.

If I was in your shoes, I would look at re-mortgaging your PPR to fund the refurbishment (along with your €190k savings).
 
Thanks for the advice.

Would the 25% need to be taken out in one go, or could it be taken out over time?

Sorry, another really stupid question....I've no real firm idea when I want to retire. How does that work with my set up? What age could I start accessing my pension? If I was to semi-retire, do something worthwhile rather than well paid, could I use pension to supplement income from a certain age?
 
Well, once you retire a pension you have to transfer the balance, after taking the lump sum, into an AR(M)F or buy an annuity. Don't forget there are imputed distributions from an ARF - you are effectively forced to make annual drawdowns.

You can certainly draw from your pension to supplement your income from 50 (assuming you can retire the pension at that age) but (a) you will lose the tax-free roll-up in respect of anything you draw from the pension; and (b) your aggregate income is obviously taxable.

TBH I would leave the pensions well alone until you are ready to retire/semi-retire.
 
You can take 25% of the value of your fund as a lump sum. The first €200,000 is tax free. The remainder is taxed at 20%. You get one go at it. You can't take €100,000 this year and the rest in the future (unless they are in different policies, then you can mature them at different times).

The advantage of accessing your funds now is that you can use it to pay down debt/ pay for refurb now without borrowing for it. Given the limits on the tax free lump element haven't increased (they are going down), you get more value for your money now (€200,000 in 10 years time isn't the same value as €200,000 today).

If you waited, the taxable amount may be higher by the time you want to draw it down.

The other 75% must be used to invest in an ARF. As Sarenco said, you will have to start drawing down 4% from age 61. If not, the Revenue will take the tax due on that 4% value regardless. But that's a fair bit away.

If you are considering drawing down your benefits from age 50, make sure the Bond you are transferring the benefits to doesn't have early exit penalties in the first 5 years. You could find yourself having a penalty of 2% - 3% if you try to access it at age 50.


Steven
www.bluewaterfp.ie
 
Thanks Stephen.

I think I need to see how the AIB thing goes. I'm hopeful that they will put my SVR on a tracker. In addition, I'm hopeful that they might put back the 80k on the mortgage, potentially plus the other payments into the mortgage, so that I have that cash in my pocket. Both mortgages started out as 200k mortgages, but I paid down the svr to bring in the maturity date.

If that happened, plus some cash from the AIB cohort, I could maybe do the house without too much additional borrowing, and then leave the 25% option for a rainy day or on retirement.
 
DundrumQ said:
Thanks Stephen.

I think I need to see how the AIB thing goes. I'm hopeful that they will put my SVR on a tracker. In addition, I'm hopeful that they might put back the 80k on the mortgage, potentially plus the other payments into the mortgage, so that I have that cash in my pocket. Both mortgages started out as 200k mortgages, but I paid down the svr to bring in the maturity date.

If that happened, plus some cash from the AIB cohort, I could maybe do the house without too much additional borrowing, and then leave the 25% option for a rainy day or on retirement.
Click to expand...

That's the main thing. If you have a use for the 25%, such as paying down debt, or not getting more debt, it is worth doing. If it's just to have the cash, it's not.

And definitely transfer the benefits to a bond in your own name. If the company has closed down, it may then be liquidated. If the company is the trustee, the liquidator becomes the authorised signature. You will have to go looking for them in 13+ years time to authorise your request to mature the pension funds.


Steven
www.bluewaterfp.ie
 
SBarrett said:
If you have a use for the 25%, such as paying down debt, or not getting more debt, it is worth doing
Click to expand...
Interesting perspective.

Would you generally advise somebody to retire a pension as early as possible to clear any outstanding mortgage debt?
 
My reading of Stephen's post was advising to draw down mortgage as a last resort, maybe to pay down debt that is expensive, rather than mortgage/tracker debt. Seems a fair take based on his above post.
 
Sarenco said:
Interesting perspective.

Would you generally advise somebody to retire a pension as early as possible to clear any outstanding mortgage debt?
Click to expand...

Not necessarily but it is something to look at when looking at their whole circumstances. You have to way up taking a lower lump sum versus the savings in paying down a debt early or you may need €150k - €200k to refurnish the house. The other 75% is not impacted as it carries on being invested through an ARF. Imputed distribution doesn't kick in until age 61. You may wish to retire by then anyway.

It certainly isn't common practice.

Steven
www.bluewaterfp.ie
 
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SBarrett said:
You can take 25% of the value of your fund as a lump sum. The first €200,000 is tax free. The remainder is taxed at 20%. You get one go at it. You can't take €100,000 this year and the rest in the future (unless they are in different policies, then you can mature them at different times).

The advantage of accessing your funds now is that you can use it to pay down debt/ pay for refurb now without borrowing for it. Given the limits on the tax free lump element haven't increased (they are going down), you get more value for your money now (€200,000 in 10 years time isn't the same value as €200,000 today).

If you waited, the taxable amount may be higher by the time you want to draw it down.

The other 75% must be used to invest in an ARF. As Sarenco said, you will have to start drawing down 4% from age 61. If not, the Revenue will take the tax due on that 4% value regardless. But that's a fair bit away.

If you are considering drawing down your benefits from age 50, make sure the Bond you are transferring the benefits to doesn't have early exit penalties in the first 5 years. You could find yourself having a penalty of 2% - 3% if you try to access it at age 50.


Steven
www.bluewaterfp.ie
Click to expand...
If he had to exit, he will be moving the balance to an ARF and be in the market for a new provider - presumably to keep the balance of the policy with same provider there is room for negotiation of the exit fee with the pension company, especially if there was no enhanced allocation ?
 
JoeRoberts said:
If he had to exit, he will be moving the balance to an ARF and be in the market for a new provider - presumably to keep the balance of the policy with same provider there is room for negotiation of the exit fee with the pension company, especially if there was no enhanced allocation ?
Click to expand...

...or he could just set up a contract with no exit fees at all so he won't have a negotiate with the provider and can choose whatever insurer he wants for the ARF thereafter...
 
@JoeRoberts - thanks for the heads up about the early exit fee. I dont envisage needing to draw down before 61 if I access 25%/200k at age 50, but good to know. In fact, based on @SBarrett input, I'm inclined to not access at all unless I really need it. Who knows what the next 15 years or so will bring.

Current pension is with 2 providers. Could I keep it like that, or does ARF restrict to one?

Could I move some of ARF into leveraged property investment in a few years, as per my original post? I know I might have early exit fees to consider, so it might be a timing thing, especially if I got enhanced allocation.
 
You can't borrow within an ARF, just a pension.

And either way, any property purchase has to be an arms length transaction, so you can't buy from the estate of a deceased parent

You can split your ARF among as many providers as you like. They usually have a minimum of c. €20k a policy but otherwise there's no limit.

Steven
www.bluewaterfp.ie
 
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