How do you handle your old company pension?

 

Dealing with your pension on leaving employment

 

If you are leaving employment and were a member of an occupational pension scheme, you may have a number of decisions to make regarding your pension benefits. This section outlines the decisions that you may be faced with and discusses your options.

Your rights

Option Statement

On leaving service you are entitled to a statement of options regarding what you can and cannot do with your accumulated pension. You will receive this statement from the administrators of your pension scheme but it may be up to 6 months after you leave service.

 

Less than 2 years of pensionable service

If you have less than two years of service, you should have the following options:

  1. Refund of your own contributions (though not your employer’s), which are taxable or
  2. Transfer of your own contributions to:
  • A new employer’s Occupational Pension Scheme
  • A Personal Retirement Bond

 

You may have the following option, depending on your scheme’s rules:

Deferred benefit.

  • If your scheme rules allow, you may be able to retain a deferred benefit, comprising the full entitlements arising from your own and your employer’s contributions for your period of service.

 

More than 2 years pensionable service


If you have more than two years’ service you will not be entitled to a refund of contributions. However you will be entitled to choose between:

 

  1. Retaining your benefits with the scheme or
  2. Transferring your benefits to:
  • A new employer’s Occupational Pension Scheme
  • A Personal Retirement Bond

 

Depending on your particular circumstances you may also be entitled to transfer to a PRSA. This option is restricted to those with under 15 years of pensionable service with the employer. If the value of your pension is greater than €10,000 you will be required to pay for a Certificate of Comparison showing the pros and cons of transfer to a PRSA. A Certificate of Comparison can typically cost anything between €500 and €2,000 depending on the circumstances. A Certificate of Comparison is not required if the pension scheme is winding up.

 

Defined benefit schemes

If you do not take a refund of contributions, you will retain the right to a pension at normal retirement age. Generally speaking, the more service and the higher your final salary with this particular employer, the greater will be your entitlement. After you leave, your entitlement will increase to take account of inflation, up to a maximum of 4% per annum.

If you choose to transfer your benefits elsewhere, your pension scheme is obliged to quote you a transfer value. Where the scheme is solvent, that transfer value will reflect the approximate present day value of your future benefit entitlements. However where your scheme is not solvent, the trustees will be obliged to reduce your transfer value in a proportion determined by the degree of insolvency.

There are several reasons why it may make more sense to retain an entitlement from the defined benefit pension scheme of a previous employer rather than to transfer out of the scheme. The reasons are:

  • Defined benefit schemes provide more certainty than most other pension arrangements, as retirement benefits are not dependent on fluctuating fund values
  • Where a scheme is insolvent (as many are) it may make more sense to wait for future steps to improve that solvency than to take an actuarially reduced transfer value

 

Note: If you do decide to retain your benefits there is no guarantee that your existing entitlements will be maintained.


Defined contribution schemes


If you are not eligible to take a refund of contributions and you leave your pension where it is, you will keep your benefits at retirement. Your benefits will be based on the following factors:

  • Your contributions up to the date of leaving service
  • Your employers contributions up to the date of leaving service
  • Investment growth or investment losses up to the date you take your benefits
  • The age at which you take your benefits
  • Annuity rates at the time that you take your benefits


The last 2 factors will only be relevant if you choose to, or are obliged to, purchase a guaranteed income for life (an annuity) at retirement.

Transfer Options

You may also transfer your pension – for example to a new occupational pension scheme or to a Personal Retirement Bond. In deciding whether to transfer you may wish to consider the following:

  • Whether the charges would be lower if you leave your pension where it is
  • Whether you want to invest in funds that are unavailable in your previous employer’s pension scheme, or whether you are happy with the scheme’s fund selection
  • Whether you would prefer to combine your old pension scheme and your new one to enable you to keep track of them more easily

 

For more please see the ‘Transfer Options Booklet’ provided by Rockwell

 

 

 

Early Retirement

Instead of the options detailed above, you may be entitled to take early retirement. This may depend on the rules of your scheme, on the consent of the scheme trustees and (for defined benefit schemes) whether the scheme is solvent or not. However, except in circumstances of ill health, early retirement is not possible before the age of 50.