For the purposes of this blog post I am going to base this discussion on defined contribution pensions i.e. where there is a pot of pension money and not a defined amount of annual income.
So you have left your job for another or you have been made redundant and you are not eligible for early retirement. You have been forward on documentation from a company looking after the pension, whom you have probably never heard of, and it comes with the caption “Leaving Service Options”.
Typically these are as follows:
Leave your pension “paid up” – this is where you decide to do nothing with it and it stays in the scheme. Thereby you let the Trustees of the scheme (usually your old management) look after the investment decisions and then when you retire you get in touch with them with a view to withdrawing your pension.
Transfer your pension to your new company scheme – so you take it out of the old one into the new one and let the new scheme trustees invest this money for you along with your regular contribution
Transfer to a PRSA – this is typically only done with relatively small amounts of money
Transfer to a new Retirement Bond or Buy-Out Bond – this is where you invest the money with a new life company as a pension bond in your own name and where you are responsible for the investment decision
So what do I advise?
Some people like having all their pensions in the one pot as it lessens the stream of communication from the life companies and allows them know at any time what exactly they have in their retirement funds. Whilst this option has a lot of merit and I wouldn’t necessarily advise against it my preferred option is to purchase a Buy-Out Bond or a Retirement Bond, for the following reasons:
You are in control of the investment and the investment choices
You can choose from a variety of providers
You can cash in the pension from the age of 60
You can cash in the pension from the age of 60 whilst still working elsewhere should you wish to
There are some very strong deals out there (based on years to retirement) that include increased allocations and low annual management charges
At any stage in the future you can move this into a company/executive scheme
Are there any drawbacks?
Like any decision you should be aware of the following:
There may be an element of risk associated with the investment so seek professional advice
Whilst there may be enticements to enter a particular deal with a life company i.e. enhanced allocation make sure you know what the early encashment penalties are
If you are currently being asked the above or have been in the past why not approach a Financial Broker to review the options and advise.