Pension planning may not be at the top of everyone’s to-do list when they’re planning their next career move, but with “jobs for life” no longer common, it’s becoming more important to consider.
As job changes become more regular, understanding what to do if you’ve signed up for an occupational pension scheme when leaving the company is of growing importance.
Pensions Focus looks at all aspects of the rapidly evolving Irish pensions market, from green pension funds to auto-enrolment delays and the introduction of master trusts, and highlights the critical importance of starting early on the retirement savings journey.
[ The Irish Times ePaperOpens in new window ]
Making a move
With occupational pensions schemes, when employers contribute to a pension – usually through matching employee contributions up to a certain percentage of gross salary – there are often conditions attached. Usually, to bring employer contributions when changing jobs, the employee will need to be in the company and contributing to the pension for at least two years. Conditions such as these are at the discretion of the employer and will vary from company to company.
The Pensions Authority says: "Pension arrangements generally allow you to transfer your pension benefits from one arrangement to another. The transfer rules depend on the arrangement you are transferring from and the arrangement you are transferring to."
Taking it with you
Paul Kenny, course leader with the Retirement Planning Council and former Pensions Ombudsman say: "If you've been more than two years as a member of an occupational pension scheme and you move to another job you can require the trustees to transfer the old pension into the new scheme or a PRSA of your own. Additionally, you can compel the new scheme to take it." This has to be done within two years of changing jobs, after that it's at the discretion of the trustees.
However, if leaving before two years, there is no certainty the employee will benefit from the employer’s contribution. Technically the employer can take back their contributions and the employee can then either leave their contributions in the scheme – depending on the employer’s rules around the pension – or take back their contribution less a tax charge.
The Pensions Authority says: “Benefits from a retirement annuity contract can be transferred to another Retirement Annuity Contract or a Personal Retirement Savings Account (PRSA). Benefits from a PRSA can be transferred to another PRSA, to an occupational pension scheme, or an overseas arrangement.
“Benefits from an occupational scheme can be transferred to another occupational scheme, a PRSA, a buy-out bond (or personal retirement bond) with an insurance company, or an overseas pension arrangement.”
Leaving it where it is
Stephen McCormack, head of financial planning with Willis Towers Watson, makes a case for sometimes leaving a pension with a former employer. "It really depends on the individual. If you've moved employment three or four times the common view would be to have them under the one banner. However, if you leave a company you can access the benefits from age 50 onwards, whereas if you transfer it to your current employer, you'd have to wait until retirement to access the pension. Sometimes it's better to keep the pot separate."
However, Kenny has a word of caution around having too many schemes. “At the end of the day, you don’t want pensions from five or six sources. Apart from anything else, the universal social charge you’re liable for probably won’t be correct – and you’ll likely owe money to Revenue. Better to consolidate as you move from employer to employer.”
Looking for a new job?
Kenny advises those changing jobs to “Check out exactly what the position is regarding a pension in a new employment. The employer is not compelled to put you into a pension scheme, but they are obliged to offer you access to a personal retirement savings account.” However, they are not obliged to contribute.