A Defined Benefit Pension is generally regarded as the “Gold standard” among pension schemes but with many pension schemes now unable to meet their regulator’s funding standards, ex- employees are now seriously considering their options.
Should you remain or leave?
This argument has been ignited in Ireland following the introduction of the option to transfer out of your final Salary Pension Scheme into a Personal Style Pension – a Personal Retirement Bond – and immediately access a tax free lump sum 25% from the fund. (Maximum €200k tax free)
This legislative change followed the introduction of “pension freedom” in the UK. Over there, 80,000 transfers out of Defined Benefit Pension Schemes were made in the year to March 2017. (Source: The Pensions Regulator)
Transfer values are increasing
Transfer values have increased over the last twenty four months particularly because of the low interest environment. This means that final salary pension schemes which are forced to invest primarily in bonds have seen their yields drop dramatically. These low interest rates now means it costs more to compensate someone who is moving out. According to Holly Thomas from the Daily Mail (27 June 2017):
More than 200,000 UK savers are planning to cash in their final salary pensions this year
The question is: should you join them?
Here at Earlyretirement.ie, we’ve seen a substantial increase in the number of ex–employees transferring their pensions into their own name. Motivated by freedom of pension options now available, our clients take personal ownership of their funds for different reasons.
Main reasons our clients give for wanting to transfer:
- Underfunded pension schemes
- Flexible income in retirement
- Large transfer value available
- Inheritance considerations
- Access to greater tax free cash
- To take benefits earlier then DB scheme allows
- Possible scheme windup
So should you stick or twist?
The first thing you should do is find out what you would receive from your previous employers pension scheme. That is pretty straightforward. We can write to the pension’s administrator on your behalf to find out what your options are. A meeting can be arranged after that to discuss the advantages and disadvantages for you of transferring out of the scheme into your own name. Everyone’s case is different. Luckily, EarlyRetirement.ie is a specialist in providing advice to people who wish to retire. Contact us and we can help you.
Johnny Mulholland is Managing Director of EarlyRetirement.ie – a pension fund management company located in Dublin Ireland.