A job is no longer for life which means that most individuals have multiple pension contracts that will accumulate from their previous employments and these contracts are often scattered across various pension providers. Changing your job doesn’t mean losing control of your accumulated pension pot related to that employment. In my experience, when sitting down with prospective clients, most will generally not have a full handle on how their retained pension benefits/ contracts are managed and quite often their retained benefits do not form part of their active investment strategies. Essentially the contracts are being left idle and without proper management.
What is a Personal Retirement Bond?
A Personal Retirement Bond (also known as a Buy Out Bond) is an individual pension bond established in your name. You can transfer your pension benefits into the bond if you are leaving or have left employment, you leave a company pension scheme or if your company pension scheme is shut down. A transfer may also be accepted from a company scheme, PRSA or Retirement Annuity contract as a result of a Pension Adjustment Order (PAO). A PRB is essentially a portable pension pot over which you have complete control. You don’t have to consult with pension trustees prior to making decisions about your pension – you can decide how to invest your funds and when you draw benefits.
How does it work?
• The bond is set up by the Trustees of your company pension. They apply for the bond in your name, but once it is set up it belongs to you and the Trustees have no further involvement in it.
• Your transfer value amount is transferred from your pension scheme into the PRB.
• The money is invested in a fund or investment strategy chosen by you.
• The PRB is a single premium contract so no new contributions can be made to it.
• The value of your PRB will rise or fall depending on fund performance.
• At retirement you will be able to take your benefits from the PRB.
When can you access your PRB funds?
You can take benefits at the normal retirement age on the transferring company pension scheme (this can be anywhere from age 60 to 70). In certain circumstances, you may be able to take retirement from age 50 or over, if you retire from the employment the benefits relate to or if you can no longer work because of a serious illness or disability.
What happens at retirement?
At retirement, you can take a lump sum of up to 25% (subject to a maximum of €200,000 tax-free, with the balance up to €500,000 taxed at 20%) of the accumulated PRB. The balance of the PRB fund can be invested in an Approved (Minimum) Retirement Fund. Alternatively you may elect to receive a cash lump sum, up to a maximum of 1.5 times final remuneration (again subject to a maximum of €200,000 tax-free, with the balance up to €500,000 taxed at 20%) and the balance of the PRB fund must be used to purchase an annuity i.e. a pension.
What happens if you die before taking retirement benefits under the PRB?
If you die before you retire, the value of your PRB will be paid to your estate. As with any inheritance, your beneficiary may have to pay inheritance tax on any benefits.
To consolidate or to not consolidate your pension contracts?
One of the most common questions I am asked by prospective clients is: “should I consolidate my pension contracts?” On the face of it, it seems obvious that you should combine your various pension arrangements in one place as it is tidier and there is only one company or provider to deal with. However, a recommendation to consolidate is often more complicated and should factor in your specific personal and financial circumstances. Increasingly we see that having two to three pension contracts can provide clients with additional flexibility when it comes to retirement and consolidating contracts can sometimes mean losing that flexibility. Having multiple pension contracts shouldn’t mean that your investment strategy isn’t a coordinated one, your pension contracts should talk to each other and essentially work in unison in order to best achieve your retirement goals.
Cantor Fitzgerald can work with you to review your pension arrangements and formulate a cohesive retirement and investment strategy. We understand that retirement can mean different things to different people and have a range of pension solutions to suit your individual pension needs.
Laura Reidy is the Head of Pensions at Cantor Fitzgerald Ireland.
Contact details for each individual team member can be accessed here on our website should you wish to speak with a Portfolio Manager or Account Executive.
Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up.