Pension Switching...     

JOB hoppers who switched employers during the boom in search of more money are starting to fret about the pensions they left behind, especially as more businesses fall victim to the recession. Pension schemes are ring-fenced when firms go bust. However, former employees may prefer to move their pensions out of schemes that are shackled to businesses that have failed or are on the brink. We examine their options.

CAN I GET MY MONEY BACK?

Yes, if you have been in the scheme for less than two years. This option has tax advantages because you only pay 20% tax on the refunds, even if you received 41% tax relief on the contributions.

For example: A refund of €2,000 would leave you with €1,600 after tax. If you top this up with savings of €1,111, you could afford to invest €2,711 in a new pension scheme. This would bring tax relief of €1,111 if you are a top – rate taxpayer, so that the net cost of the top-up is nil.

HOW SOON CAN I ACCESS THE PENSION?

When you reach 50, provided the trustees of your former employer’s pension scheme agree. However, your pension won’t be worth much if you retire at 50, so it’s only an option if you’re desperate for the money.

SHOULD I TRANSFER TO MY CURRENT SCHEME?

Not necessarily. Transferring benefits from an old employer to your current scheme allows you to keep all of your pensions under one roof. Convenience may carry a cost. Just because you can transfer benefits between employers’ schemes doesn’t mean that you should. Your former employers’ scheme may offer a better choice of investments or a guaranteed growth rate. There may also be charges for leaving one scheme and joining another.
Retaining memberships of several schemes allows you to stagger retirement, drawing a pension from one scheme so that you could afford to reduce your working week in your current job as a prelude to retirement.

CAN I GO IT ALONE?

Rather than switching from one employer’s scheme to another, you can take control of your pension from an old job by transferring it to a buy-out bond. The money stays locked up until retirement, but you get to decide where and how it is invested. All pension providers offer buy-out bonds, with some having self-directed versions that allow you pick individual assets.
Personal retirement savings accounts (PRSAs) offer a similar freedom, although you face hurdles transferring from occupational pension schemes to PRSAs, such as:

• Transfers are not allowed if you have been in the occupational scheme for more than 15years.
• If the transfer amount is greater than €10,000, an actuary must provide you with a certificate of benefits comparison, which costs at least €500.

PRSAs used to provide back-door access to approved retirement funds (ARFs) for those in occupational schemes, allowing them keep control of their pensions in retirement. This advantage has disappeared since the Finance Act 2011 opened access to ARFs to all pension savers.

TOP TIP

The starting point in deciding upon your options is to obtain an up – to – date valuation of all your pension funds.