What should you do with your previous workplace pension?
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While previous generations often reached retirement age with a single pension to withdraw from, it’s now commonplace for workers to have multiple pension pots.
The great resignation of 2021 is well underway, with a recent study by Microsoft showing that 41% of workers are considering leaving their jobs after the pandemic. This means huge growth in the number of deferred members of pension schemes.
While leaving a pension fund untouched across multiple schemes requires the least effort for someone who has moved jobs, it’s not always the wisest move. When an employee leaves a company, their pension is generally left in a default pension fund — a wasted opportunity for growth.
Transferring a previous pension or multiple pension pots into a private retirement bond (PRB) not only brings everything under one roof, but it also pays off financially too. For example, a member of Irish life High Growth in 2020 would have seen a return of just 1.56% on an Esma 5 fund — by having this pension transferred into a PRB in Zurich’s Prisma 5 fund, the return would be 10.9%. Another study by Rubicon showed that Irish managed funds returned 6.2% in 2020 while the S&P 500 returned 16.26%.
A Personal Retirement Bond (or ‘Buy Out Bond’) can’t exist unless your previous pension pots fall into one of the following categories:
- Executive or Occupational Pension;
- Personal Pension;
- PRSA Retirement Annuity.
When you take out a PRB, the benefits from these pensions can be transferred into a bond that’s been established in your name. Investment options are widespread and access is granted from the age of 50.
If you have multiple pension pots, you have a few options in terms of how you want to manage them. You can transfer your old pension to your new employer. You can transfer it to a PRSA.
Or you can simply do nothing at all (though we’ve established that doing nothing is still doing something!) However, of all of the options available to you, transferring your previous pension benefits into a Private Retirement Bond (PRB) will likely give you the most control, as well as visibility over your pension.
With a PRB, everything is in one place. Any previous pension scheme trustees or employers will no longer have any involvement with your retirement fund. So rather than having multiple pension pots with varying access terms, that are all being invested in different ways (some of which you might have no control over) you get to make the decisions about where your funds are being invested.
You also have the option to transfer your PRB to another PRB in the future should you wish to.
Depending on your personal circumstances, a PRB is also a popular choice for transferring a pension that you may have accumulated from working in the UK and keeping it under one roof alongside your other pots.
A Private Retirement Bond also tends to give you more options at the time of retirement.
- Taking a once-off, tax-free cash lump sum (typically up to 25% of the asset value);
- Purchasing an annuity with the remainder of the funds;
- Transferring the remaining funds to an Approved Retirement Fund and/or Approved Minimum Retirement Fund, which would also be held in your own name.
- Access to a PRB is possible from the age of 50, but in the event that you become seriously ill and need to access it earlier, you may be able to draw down your fund. If you die before you access your PRB, funds will be paid to your estate.
- By transferring into a PRB the asset is paid tax free to the spouse in the event of death, this is not always the case in an occupational pension scheme.
Studies show that individuals who review their pension with a broker on an annual basis have a much healthier pension in retirement than those who don’t engage. With a PRB, you are in the driver’s seat. As a deferred member of a pension scheme, on the other hand, you’re often not getting the same level of service in terms from your former pension provider in terms of how your fund is performing.
A pension is often something that we don’t pay great attention to so long as it’s ticking away in the background throughout our careers. But burying your head in the sand when it comes to your pension isn’t going to serve your retirement if there is an opportunity to get more out of the pots that you are contributing to every month and year.
www.elevatefinancial.ie/pensions