With a more mobile workforce, the question of what happens to existing pension funds when leaving employment is becoming a more prevalent question. People who are leaving employment and were a member of an occupational pension scheme may have a number of decisions to make regarding accumulated pension benefits. At Insight Private Clients, we are currently seeing a lot of transition within the employment market and receiving a lot of enquiries from clients revolving around what will happen to their pensions when they move jobs.

Where a decision is made to make a career change or take a redundancy offer, one of the most important issues to be considered is what will happen to pension benefits associated with the previous employer. After all, this is something that employees have diligently contributed to for many years. It is important to ensure that they make the right and informed decision, prior to moving jobs. There are a variety of options available to individuals that find themselves in this position. However, we will concentrate on the three favoured options:

• Leave pension benefits where they are
• Transfer of pension to an alternative arrangement
• Get a refund for contributions, if available.

The Pensions Authority acknowledges the above as being the main options when leaving employment. It is vitally important to conduct a proper analysis of your options and weigh up the pros and cons of each, depending on your circumstances and ensure a full appraisal of Rules governing Occupational Pension Schemes are adhered to.

Option 1: Preservation of Pension Benefits

Considered the simplest and effortless option by many, employees with at least two years of pensionable service with a Company are entitled to leave their occupational pension benefits within the occupational scheme until they decide to move their benefits or draw their benefits upon retirement. The funds should continue to remain invested per the investment strategy chosen, and when the individual wishes to draw benefits, you simply request a ‘Retirement Options’ form and select the option that best suits you from those available. Again, certain Rules relate to access need to be adhered to.

While this may be the simpler choice in theory, there are some potential downsides to consider. For example, the scheme is required to maintain your benefits after you leave, but they are under no obligation to keep you updated on the status of your fund. The actual fund performance can also be an issue, with some funds underperforming the benchmark. The necessity to ensure the appropriate Fund is employed now rests with the Individual and their requirements. If not, actively reviewed performance may disappoint and by extension, future income capability, from such Capital can be adversely affected.

Option 2: Transfer your Pension

Another option to consider when leaving employment is transferring your pension out of the company scheme. You can potentially transfer your pension to a Personal Retirement Savings Account (PRSA), a Buy Out Bond (BOB), or the occupational scheme of a new employer. The option that you choose will depend on the current scheme rules and your priorities as per your financial plan.

If you take your benefits to your new employer, you can keep some control and keep your funds together for administration purposes. However, not all schemes allow this, and changing jobs again in the future will force you to make this decision all over again. You also do not have as much control as you would with the option of moving your benefits to a PRSA or BOB.

The purpose of a BOB (also referred to as a Personal Retirement Bond) is to hold pension benefits from previous employment in a separate structure and is attractive to many as it gives the individual more control over investment and visibility of the plan itself.

Option 3: Get a Refund

The final option is to get a refund for your contributions. This option is only available if you have less than two years of pensionable service with the company. If you take this option, you will be taxed on the refund and may lose valuable pension benefits, so it should be considered as a last resort.

Regardless of which option you chose, the important takeaway is to ask the right questions of your advisor. When we make assumptions, we don’t get a true understanding of such choices. This can mean that decisions, judgements, and conclusions are made from the wrong baseline or by not understanding how deep the issue is of obtaining professional, impartial advice.

If you are interested in discussing your options further contact our Senior Consultant Shaun O’Connor.