Defined Benefit V’s Taking a Transfer Value
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 your 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 lets 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 on how you take income from it.
- If you die the fund value is transferred to your spouse & if you both die your family get 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 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 the transfer value route. This is where Moore Financial Consultants can help you. We act on behalf of all of the major life companies and a full list is on the website at Moore.ie
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. Feel free to call us on 058 86009.
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