Leaving employment: Pension options for under 50s.

Leaving service options for the under 50s 

 

If you are under 50 when you leave an employment where you have been contributing to a pension plan, you have options regarding the future of your pension. These possibilities are known as Leaving Service Options.

 

Changing employer: Leaving Service Options

 

There are a few things you should think about if you intend to leave your current workplace through a career change, relocation abroad, or retirement.

 

Depending on which side of 50 you are on will greatly affect your selections.

 

In this article we will discuss Leaving Service Options for under 50’s.

 

If you’re under 50, your Leaving Service Options are dependent upon qualifying service, which is defined as the time spent working while enrolled in the employer pension plan.

 

Qualifying service also includes comparable work done under another employer’s pension plan or under a pension plan from which a transfer value has been paid.

 

If you switch occupations within two years of accumulating qualifying service, you may be eligible for a refund minus tax, a transfer to another pension, or, in some circumstances, permission from your former employer to keep the money invested.

 

You will have options for the retirement funds you have accumulated throughout your tenure with the company, such as transfer to another pension or deferment, after more than two years of qualifying service in the company pension plan.

 

Option 1: Pension deferment

 

A deferred pension is one where the value of your retirement funds is kept in your current pension plan. Since this is the default choice, your retirement savings will stay in the existing pension plan if your pension provider doesn’t hear from you. When you leave employment, you will automatically join the plan as a deferred member.

 

Even though it is the simplest choice, leaving your pension behind is not advised, especially since pension schemes are not required to maintain contact with you or give you yearly reports on how your pension is being handled or invested. As a result, you lack the freedom to decide on your investments and do not have up to date information regarding your investment.

 

Employee pension funds are frequently transferred from assets to cash, preventing them from outpacing inflation and the fund’s related fees. As a result, this slows down the growth of your pension and could derail your plans for retirement.

 

If you are thinking of leaving your current employment, it is important that you to ask yourself the following three questions:

 

1. Are the fees reasonable and open?

2. Does the Pension Provider respond promptly?

3. Has your pension been successful in terms of performance?

 

If you have answered “no” to any of the above questions, it might be worth thinking about taking your pension with you.

 

Benefits of deferring your pension:

 

· No filling out forms.

· If you are a deferred member, you can still receive your pension when you reach retirement age. You can do this by taking a tax-free lump payment, transferring the money to an annuity, or choosing an Approved Retirement Fund (ARF). 

 

Cons of deferring your pension:

 

· The scheme’s trustees are not required to stay in touch with you (no regular updates).

· Your retirement alternatives are constrained by the rules of the scheme (including early Retirement).

· If you pass away prior to retiring, it could be more complicated for your dependents.

· You won’t have access to financial advice after leaving the company.

· When changing employment, there is a chance that you may eventually lose track of the pension and forget about it.

· Larger plans have fewer investment possibilities because they serve several employee groups (your investment could under-perform).

 

Option 2: Pension contribution refund

 

You can ask for a return of the value of your own employee contributions less tax (currently 20%) if you have less than two years of qualifying service. Unless you meet the criteria of an Outgoing Worker*, you are generally not entitled to a reimbursement of the employer contributions made by the company on your behalf.

 

*A person who has left their company after September 13, 2019, and has either worked in another EU member state or is leaving the country to work in another EU member state is referred to as a “Outgoing Worker”.

 

Option 3: Switch to a different pension

 

Your retirement assets can be transferred to a new employer pension plan, a personal retirement savings account (PRSA), or a personal retirement bond (PRB), also known as a buy-out bond.

 

It’s crucial to receive impartial financial guidance when assessing your options. MOJO Finance can go through all Leaving Service Options with you including all those areas which should be considered when switching to a different pension.

 

When transferring your employer’s pension plan, you may select one of the following:

 

Switch to a new employer’s pension plan

 

Your company pension plan’s assets might be eligible to be transferred to the pension plan of your new employer. The new pension plan’s trustees must provide their blessing for this. If you have less than two years of eligible service, your employer’s payment might not be included in this. To find out whether this choice will include your employer’s contributions, please read your letter with your Statement of Options upon leaving service.

 

You can think about consolidating your retirement benefits with the help of your advisor by switching your current benefits to the pension plan of your new employer. However, not all pension plans permit this, so you should verify first.

 

The benefit of this is that everything will be under one roof, making it simpler to calculate your overall pension benefits and how much income you may expect in retirement as opposed to taking into account a lot of different pots.

 

The disadvantage of shifting pension benefits is that you would have to sell off current assets in order to transfer them to the new fund. This would increase the chance of being out of the market for a long time, which could result in you selling out at a lower price and buying at a higher one, depending on the state of the market.

 

Switch to a Personal Retirement Savings Account (PRSA)

 

A PRSA is a personal pension plan that you purchase from an approved PRSA provider. You utilize it as an investing account to set up money for retirement. The contributions made by your employer might not be included. To find out if this choice will include your employer’s contributions, please check your Statement of Options. Transfers to PRSAs are allowed only where the following conditions are met:

 

• The transfer value is greater than €10,000

• The company pension scheme is not in the process of being wound up

 

Also note that a Certificate of Comparison (which compares the expected benefits from the company pension plan with the expected benefits from the PRSA) must be provided.

 

Switch to a Personal Retirement Bond

 

A Personal Retirement Bond (PRB), commonly referred to as a “buy-out bond,” is a unique kind of personal pension plan in which the most common source of premium payment is a transfer of value from a prior employer’s pension plan.

 

If you have left your employment, you can use the PRB’s revenues to offer a tax-free lump payment as part of your retirement benefits starting at age 50. There are no more contributions you can make to this plan. If you have less than two years of eligible service, your employer’s payment might not be included in this. To find out if this choice will include your employer’s contributions, please check your Statement of Options.

 

Although management fees can sometimes be a little higher, the advantages of Personal Retirement Bonds can far outweigh the costs.

 

· Gives you authority over your pension assets,

· Breaks any ties to your former employer in the future,

· Enables you to invest your pension fund in accordance with your unique situation and financial goals.

· Here we are assessing Leaving Service Options for under 50s. However, it is worth mentioning, individuals over 50 can generally take a tax-free lump sum from a PRB and use the remaining funds to buy an annuity (pension) or invest in an Approved Retirement Fund (ARF).

 

Conclusion

 

Although switching to a PRSA can in many cases, and in particular for larger transfers, offer more flexibility for future planning, the Personal Retirement Bond is typically the most practical option because it is a quick and easy way to take your pension benefits with you when you move employment. You own the pension money you’ve accrued, so why not exercise personal ownership over your assets?

 

MOJO Finance will first determine what is the best course of action for you and where a transfer is most suitable, we can help you navigate the pension transfer procedure and make sure the funds are set up properly in order to achieve good strong performance and adding to your retirement funding in a meaningful way.

 

Please find a LinkedIn post describing the importance of Setting up Personal Retirement Bonds correctly

 

Please feel free to book a Pensions & Retirement Consultation through the MOJO Finance website.

We will explore Leaving Service Options for over 50’s in the next blog.

Leaving employment: Pension options for under 50s.