Sticking with one company for your career is now the exception, rather than the rule and it’s now become the norm for workers to switch jobs every 3 to 5 years, or less. The reality in this scenario is that pension benefits are being left behind in old jobs. Moving jobs is a huge decision for anyone to make and more often than not the last thing on your mind will be the pension benefits attaching to the job you intend leaving!
If you were a member of the Company Pension Scheme of a “former” Employer, it is important to follow up on the “options” available to you regarding your Pension pot on leaving service. You should receive what is called “Leaving Service Options” from the Pension Scheme administrators within a number of weeks after the date you leave service. The majority of People will fall into the category of being members of a Defined Contribution Scheme with more than 2 years service and will therefore have the following options available to them.
Option 1: Leave Your Pension Where It Is
- Charges are likely to be lower in a large group scheme but this isn’t a universal truth.
- Any retirement options, including early retirement, will be according to scheme rules.
- Large schemes have a more limited range of investment options since they’re built to cater for large groups of employees.
- Trustees are not obliged to keep in contact with deferred members (which is what you are referred to once you have left service)
- If the scheme is closed you could lose your accumulated rights if you are transferred out to a PRSA instead of the current PRB option.
Option 2: Transfer Your Pension into a Personal Retirement Bond (PRB)
- Full cash value is held under one single premium contract that is owned by you personally.
- Your accumulated rights are preserved i.e. all salary and service details are recorded which maintains your rights to the ‘lump sum only’ option.
- You can still access your benefits from a PRB from age 50 just like in the main scheme.
- You have full control over your money and the investment decisions.
- You can design a personalised, risk tailored portfolio that suits your tolerances, risk profile and long term growth goals.
The annual management charges tend to be higher depending on the funds and/or assets chosen.
Option 3: Transfer Your Pension Into Your New Employers Pension Scheme
- You maintain full active control over your entire pension fund.
- You could lose your accumulated rights of salary and service if you transfer into the wrong type of scheme being offered.
- If you transfer from an old scheme into a new scheme, then you must draw them down at the same time. Keeping them separate allows you to draw them down separately.
1. May sound very silly but make sure and confirm whether the Scheme of which you were a member was a Defined Benefit Scheme or a Defined Contribution Scheme!! If you’re in a so-called final salary or defined benefit scheme (DB Scheme), where your pension will be paid out in a guaranteed annuity, the decision can be that bit trickier. Staying as a deferred member of such a scheme can deliver greater benefits in the form of a guaranteed income in retirement.
2. If you die before drawing on the Buy Out Bond, the value of the funds in your Buy Out Bond at that stage will be paid to your estate, for the benefit of your next of kin.
3. From the age of 50, you will be able to take early retirement benefits from your PRB. Note that the earlier you take your benefits, the lower your annual retirement income or lump sum benefits are likely to be.
4. Always seek Financial Advice prior to deciding on what to do with your old pension scheme
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