I have multiple pensions from different employments, all with different managers. One of these is invested in a personal retirement bond, which became available (I’m unsure of the correct terminology) when I turned 50.
This bond represents less than 20 per cent of my total pension savings. I would like to cash out the entirety of this personal retirement bond as a lump sum in order to pay down my mortgage. However, the manager, Irish Life, is only offering me the option to take 25 per cent of the bond as a lump sum and has been unwilling to engage with me regarding my total pension savings.
Is it necessary for me to gather all my pensions under a single manager/single product before I can achieve my goal?
Mr R.B.
This is going to be an increasingly common issue for people as the “job for life” disappears into the past and a career increasingly means working for a number of different multiple employers over a working lifetime, sometimes at the same time in a portfolio career.
That changes the game for pensions.
While you are with an employer, you are stuck with investing in the pension scheme they offer. But, generally, when someone leaves a job, they have a number of options on what they can do with the pension benefit they have accumulated – especially in a defined contribution scheme.
First, they can leave the pension where it is. Clearly, there will be no more contributions to the pension either from the employer or the now departed employee but the money in the fund will generally continue to be invested – though you need to confirm it will be – and will be available to the former employee when they retire or otherwise under the terms of the specific pension fund.
The important thing here is for the employee to keep track of their various pensions. There is a tsunami of unclaimed pensions out there simply because people have lost track of their various entitlements. As a minimum, you need a file with details of the companies with which you have built up pension savings and when you worked there. Ideally, you would also note details like employee numbers, pensions scheme membership details such as who manages the scheme and, if you change your name after marriage or for any other reason, the name the fund will be held under.
The more detail you have, the easier it may be to find the money to which you are entitled, especially if you are going back to companies you worked with 30 or more years previously.
Second, depending on the terms and conditions of both funds, it is generally possible to transfer the accrued pension fund to the fund of the new employer. That can be a tidy solution but whether it is a good idea depends on the schemes themselves, how they are invested, what charges are in place and how that compares with where the money is originally managed with your previous employer.
It can pay to take a close look at the merits of the respective pension schemes rather than jumping to a decision.
Finally, it is possible to ask your employer – or rather the trustees of that employer’s occupational pension scheme – to take your entitlements to date and put them into a pension bond, also known as a personal retirement bond, a buyout bond or even a transfer bond – no wonder people get confused by pensions. These bonds are designed precisely to facilitate pension portability for people moving jobs – or even taking a break between employments.
The big selling point of pension bonds is that it gives you much more control over your retirement savings. You can decide how the funds are invested rather than simply relying on the options provided by your former employer in their scheme. However, this does come at a cost, something we will come back to.
Whether you avail of this route generally depends on you. In the normal course of events, it does not happen unless you make an active choice to do so. However, it is worth checking the terms and conditions of your existing workplace scheme before departure and it is always worth taking the time to actively tell your pension fund trustees what you would like to do with your pension savings. In some cases, if the scheme hears nothing from you in a certain period after you have left the business, they may automatically default to putting your savings into a bond. The rules of your existing pension scheme will clarify this.
It is also possible that putting your invested retirement savings into a bond becomes necessary because the scheme is being wound up. Over a 40-year career, you may well work for companies that do not survive or where existing schemes are wound up for other reasons. Trustees have a legal obligation to protect the benefits built up in a pension scheme and, if a scheme is being wound down for any reason, they may well transfer your benefits to a personal retirement bond.
Normally, they will make efforts to contact you to tell you they are doing so but not everyone keeps the managers or trustees of old pension funds up to date with their address as they move homes. In fact, I’d warrant it is the last thing most of us think about when moving home.
If you choose the personal retirement bond route you have further options. You can transfer the funds to a subsequent employer’s scheme or you can move the bond to a new provider. Bear in mind that each time you leave an employer and take this option, they will be setting up a separate buyout bond.
The big advantage is the individualisation of investment strategy. You can chose where to invest your money, you can change that strategy should you decide to and you can determine the level of risk that you are happy with rather than relying on the options available with the schemes offered by either your current or former employer.
The flip side is that you bear the associated costs. First, you would be well advised to take professional advice from a financial adviser before setting down your preferred investment strategy. That will cost. Then you will have the costs charged by whomever is managing the fund to oversee your bond’s investment. Unsurprisingly, charges tend to be more competitive in bigger funds rather than the customised one-man operation that is a personal retirement bond.
Drawdown
Which brings us to your specific issue. When can you access these policies?
As you have discovered, it is usually possible to access a personal retirement bond from the age of 50, subject to conditions imposed by the trustees of your former occupational scheme.
Depending on your choices for fund drawdown and the terms of the original scheme, you can either take 25 per cent of the bond, or 1.5 times your salary as a tax free lump sum up to a maximum of €200,000. That limit applies to cash drawdowns across all your pensions in aggregate, not to each one.
The balance then goes into an annuity offering guaranteed annual income or to an approved retirement fund where the assets remain invested and you draw down an income over time, unless you wish to draw down the funds as taxable cash.
If the fund allows it, and you wish to draw down all the funds, they will be taxed at your marginal, or higher, rate of income tax which is not generally considered a sensible option in financial planning terms. And, as you have found out, you may not be allowed to cash out in any case until a certain age.
The bit that concerns me here is your perception that Irish Life, which manages this bond, will not engage with you. The pensions industry gets a lot of flak for talking in jargon and making pensions impenetrable for workers. The industry protests that it invests hugely – both in terms of money and time – in making pensions more accessible and understandable for those whose money this is. A suggestion that Irish Life, or anyone else, would not engage is disturbing.
However, they many not be able to comprehensively advise about all your pensions savings if they manage only some of them and do not have full visibility on the rest . . . though they should certainly be able to explain that to you.
Will gathering all your pensions under a single manager or product allow you the access you seek?
Not necessarily. It may not even be possible, depending on the status of your various pensions. Each will have its own rules on when benefits may be drawn down – and that might not always be at 50. You will need to look at the rules in pace on each of your pensions / buyout bonds.
But there may be advantages in terms of cost or control in bringing several pension pots into one product. You should take professional advice before making such a move.
Finally, in relation to this bond, if a person dies before they retire, the value of the bond at that time is transferred to their estate and dealt with under the terms of their will.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
- Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Find The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
