Pensions On The Move
As we hurtle towards the third decade of the 21st century, the idea of a “job for life” seems almost antiquated. Most of us will change careers at least once or twice, if not more, during our working lifetime. Many people will also choose to leave the marketplace for a certain period to concentrate on parenting or caring duties. Others will take time out to retrain or embark on further education.
How do you manage your pension in an increasingly mobile global jobs market?
Here are some top tips to ensure your pension does not get left behind as your career progresses …
EXITING A PENSION SCHEME
Membership of an occupational pension scheme ends when you leave your employer.
If you have paid at least two years of contributions, you can leave your benefit in that fund.
In a Defined Benefit (DB) scheme (where your pension is based on a percentage of your final salary), when you leave service your entitlement remains in the scheme until normal retirement age (subject to revaluation) when you may receive your entitlement as defined by the scheme rules but subject to the solvency level of the scheme (benefits can be reduced if the scheme is underfunded). Some DB schemes allow entitled members to take early retirement benefits (from age 50 onwards), but benefits taken earlier than the normal retirement date are greatly reduced.
You may be offered a Transfer Value to move out of a DB scheme. A financial advisor can help you weigh up the pros and cons of such an offer, including an Enhanced Transfer Value.
By far the most common pension arrangement in Ireland is the Defined Contribution (DC) scheme. Contributions are invested to provide retirement benefits to you in the future.
If you switch jobs, you have the option of transferring your pension to a new employer’s Occupational Pension Scheme, putting the money into a Personal Retirement Bond or opening a Personal Retirement Savings Account (PRSA).
Many Irish people have worked in the UK for a period of time and built up some pension entitlements. Irish Revenue will allow pensions from overseas to be transferred to an approved occupational pension scheme, PRSA or Buy-out bond (BOB) under certain conditions, including that the transfer takes place before any pension benefits are paid out.
Remember, you need to be a tax resident in Ireland for 10 years to avoid a UK tax charge on any pension fund transfer. Funds must also remain in the Qualifying Recognised Overseas Pension Schemes (QROPS) for five years before retirement or a transfer payment can be made.
So take action as soon as you can.
The benefits of moving your UK pension to Ireland include having more control over the fund and better death benefits — Britain has much higher inheritance taxes.
Furthermore, accessing benefits before age 55 may result in a liability to UK tax charges. If you choose to remain in an overseas pension scheme, you may be able to avail of “migrant member relief”, subject to certain conditions.
While most UK private sector pensions can be transferred to Ireland, many British public sector pensions cannot.It is crucial to get independent financial advice before transferring a Sterling pension back home, especially with the continued uncertainty over Brexit.
There are billions of euro sitting in “lost” or forgotten pension accounts. Many Irish people are unaware that certain schemes allow you to draw down a lump sum tax free from the age of 50. Tapping into your pension pot could provide you with this crucial cash injection as well as an annuity when you retire.
A financial adviser can, with your permission, track down all your previous pension contributions from various different jobs.