When our parents started working it was normal to stay with the same company until you retired. Nowadays it is rare for someone to stay with the same employer for 20 or 30 years. Most of us will have 5 or 6 jobs before we retire, we may even change career 2 or 3 times which also means multiple pension pots. So, what happens your pension when you leave?
Essentially, you have three options when leaving your employer:
Leave it where it is
You can decide to leave your pension where it is, definitely the easiest option for now, but not always the best. Imagine trying to track down an old employers scheme in 20/30 years’ time!!! Also, when an employee leaves a company, their pension is generally left in a default pension fund. This can become a wasted opportunity for growth.
Before leaving the company take the opportunity to review your pension and get proper financial advice on the best option for you. If your old company offers impartial financial advice to their employees, then you should avail of this service before you leave the company… you may have to pay for it otherwise. If you do leave it where it is, make sure you have the contact details of the pension administrator, and keep all your pension scheme documentation together including payslips, pension benefit statements, booklets, etc.
The Pros & Cons
- Once you reach retirement you can access this pension the same as any other pension – take a tax-free lump sum; transfer the funds into an annuity or opt for an approved retirement fund.
- The Trustees of the scheme are not obligated to keep in contact with you
- Your Retirement options are subject to the scheme rules.
- Your investment could under-perform as bigger schemes have limited Investment options since they cater for large groups of employees
- When moving jobs, you might forget about the plan over time. Make sure your pension provider has a mobile number and personal email address for you. The trustees of the pension need to be able to track you down if they need to
- Passing away before retirement could complicate matters for your dependents.
- You may not have access to Financial Advice after you leave the company.
- Access to your pension is determined by your ex-employer.
Transfer it to your new company’s pension scheme
Once you’ve started in your new job you could transfer your existing benefits to your new employer’s pension scheme, if the scheme allows for it. Everything is consolidated under one scheme giving you control over your pension pot as well as keeping it in on place. It will be easier to work out your overall pension benefits and how much income you would expect in retirement.
The Pros & Cons
Transferring your pension benefits would require you to sell up existing assets in order to transfer them to the new fund. The main risk here is being out of the market for some time, and depending on market conditions, could mean you selling out at a lower price and buying at higher one. You also need to consider how your fund(s) are treated for your dependants on your untimely death.
However, it does means you’ve consolidated your pension and you don’t run the risk of forgetting about it over time.
Transfer it into a Personal Retirement Bond (Buy Out Bond)
You can transfer your pension benefits from your old company pension scheme into an individual pension bond set up in your own name. You take control of your pension and can access it from aged 50. However, if you become seriously ill before the age of 50 you may be able to draw it down sooner.
It’s up to you when you want to take the benefits and it is independent of your other pensions. Depending on the original pension scheme you have a few options when you decide to take your benefits:
- You might take part of it as a lump sum
- You might be able to use the balance to buy an annuity or
- You might be able to transfer the balance to an ARF (Approved Retirement Fund)
The Pros & Cons
- You control how you want to invest your pension and the risk level you are comfortable with
- You can access your pension at 50
- You can transfer the full value of your PRB to another PRB or occupational pension scheme that’s approved by Revenue, however you may incur additional charges.
- Once you transfer a pension out of your previous employer’s pension scheme it cannot be reversed
- PRBs can be more expensive than leaving your pension in a large pension scheme where economies-of-scale exist
- You cannot make further payments to a PRB. It is a is a single premium account designed to accept a transfer from an occupational pension scheme.
What happens if you have more than one pension?
You’re coming up to retirement and you realise you might have a couple of pensions with previous employers going back 10 or 20 years… What should you do?
If you are moving jobs or you’re nearing retirement and think you may have a few pensions from previous employers, then talk to a Financial Planner. They will advise you on how to move forward and the best option for your circumstances.
You should have received “Leaving service options” when you left your previous employer outlining your options in relation to your benefits under the scheme. It will set out when you joined the pension, when you left, and above all, the value of your pension (how much retirement money is at stake). If you can’t find your paperwork, contact the HR department of your old company and ask for a copy of your LSO letter. You can ask for an LSO letter at any time whether you’ve left your job last week or 10 years ago. They will be able to give you an up to date value of your pension.
Your pension is an asset for your future and your options need to be carefully considered. In today’s working environment, it’s normal for a person to have numerous pensions when they reach retirement from different employments. There are various pension transfer options available when you leave an employment, it’s important to understand your options and make an informed decision. Decisions made now will affect your future financial situation.
So, take the time to work out what you want to do with this asset that can benefit you in the future. Don’t just leave it there.