What is the right thing to do?
The number of defined benefit schemes in Ireland is steadily declining each year. More and more schemes are either closed to new entrants or winding up altogether. In many cases the number of deferred members out number the current active members. In an attempt to ease the administrative and financial headache of these schemes, some trustees and employers have contacted former employees and given the option to transfer out to an alternative pension arrangement. In many cases attractive financial incentives are being offered to do so.
Here is a simple explanation of the options available to you and the facts you need to consider.
Quite simply put you have two choices :
Leave your pension fund within the existing Pension & take a promised pension for life,
or take the entire fund into your own hands take 25% of the overall fund tax-free and transfer the balance into an AMRF and an ARF..(approved retirement fund)
The Pros and cons of taking the pension being offered
- There is certainty in a DB pension each and every month as long as you live
- There is a spouse pension of 50% if you die
- You don’t have to worry about fund performance in your old age
- The ability of a DB scheme to pay you a pension based on your final salary depends on the scheme’s ability to fund its pension obligations for all members going forward.
- If you both die the fund is not transferrable
Now let’s look at the Pros and Cons of taking the Transfer Value
- Most likely you will be able to take a higher tax-free lump sum than you will receive on the existing Pension.
- The transfer value often looks very attractive.
- You will have full control over your pension find and how it is invested and also how you take income from it.
- If you die the fund value is transferred to your spouse & if you both die your family gets it.
- The fund values will fluctuate up & down
- Taking a transfer value involves giving up the certainty of a retirement income in order to take control of the pension fund yourself.
Key factors to consider:
- What is your health like?
- Do you want to be involved in the management of your wealth going forward and all the risks associated with it?
- Is passing on wealth to the next generation a priority?
- Does a transfer value give you more flexibility?
- Do you want the certainty of pension?
There is no right & wrong answer. Some people prefer the defined benefit pension while others like to take control especially if the transfer value is attractive.You will need professional advice especially if you decide on the transfer value route.
This is very much a personal choice that you need to make.
We do not advise which way to go other than to provide the information in relation to both so you need to be happy with the decision you make.
The value of investments may fall as well as rise
Past performance is not a reliable guide for future performance.
Nothing in this article constitutes legal, financial, or other professional advice. The information is based on our understanding of current law, and revenue practice as of June 2020. E&OE.
Eamonn J Moore Ltd t/a Moore Financial Consultants is regulated by the Central Bank of Ireland.