10 simple things that everyone should know about Retirement Bonds
1. What exactly is a Retirement Bond? A Retirement, or Buy Out Bond is a special form of investment that you own and control and is made up of pension benefits that have been transferred from a previous job. They operate under the same rules as a pension however by transferring into a Buy Out Bond all benefits are transferred from the company scheme into a product in your sole name, over which you have full investment control.
2. Why would I want a Retirement Bond? Retirement Bonds are perfect for anyone who has built up a few years of pension benefits here and a few years of pension benefits there or have left a job where you have accrued benefits to move to another employer. Rather than spend your time trying to keep track of what you have where and worrying that ex-employers mightn’t have your best interests at heart, a Buy Out Bond gives you complete visibility of your pensions benefits, in one, easy to monitor place. For multiple pensions you would simply set-up one bond for each pension with the same provider.
3. How do I choose the right one? There are a multitude of Retirement Bonds in the Irish market and choosing the right one for you is a complex and specialist process. In order to choose the right bond for your unique circumstances, factors such as your age, your planned retirement date and your attitude to investment risk, as well as your level of investment sophistication need to be taken into account. Not only that, but things like investment charges and past performance need to be considered (albeit that past performance is not a guide to the future). It is for these reasons that the only way to make sure you get the best Retirement Bond for your unique and personal set of circumstances is to work with a Financial Broker like ourselves. In order to choose the right bond for you, we’ll work hard to understand not only your current financial situation, but also your hopes and aspirations for the future and we’ll use that information to guide us to make the right choice for you.
4. Who owns a Retirement Bond? The great thing about a Buy Out Bond is that it’s you who owns it. It’s your property and is part of your personal financial portfolio; your previous employers no longer have anything to do with the pension investment decisions you make.
5. Who makes the investment decisions? There is a whole range of underlying investments that can be included in your Retirement Bond. Which investment you should choose will depend on your age, your attitude to investment risk and the size of your fund. All of that said, most people find it comforting to have a knowledgeable and understanding Financial Broker close at hand to help identify the best investment opportunities for their unique circumstances.
6. When can I take the benefits? Although your normal retirement date is determined by your previous employer’s scheme and doesn’t change when you transfer to a Buy Out Bond, you can choose to take early retirement. With this type of bond, you can opt to retire between the ages of 50 and 70 and it doesn’t matter if you’re still working or not, you take the benefits when you want or need to. In the event of serious illness, it may be that the benefits of your bond can be made available to you before age 50.
7. When I retire will I have to pay tax? When you decide to avail of the benefits of your Retirement Bond, you’ll be able to take a proportion of the fund as tax-free cash and with the remainder you can :
i) buy an annuity that will provide you with income
ii) purchase an Approved (Minimum) Retirement Fund
iii) take the remaining monies as taxable cash
iv) or a combination of the above
The amount of tax-free cash you can take will depend on various factors and as your Financial Broker we will guide you on the possibilities. Income generated from annuities is potentially taxable and whether or not you will have to pay tax on this income will depend on your individual circumstances. Also, should you wish to purchase an ARF you may be required to purchase an AMRF but once again as your Financial Broker, we’ll guide you.
8. What happens if I die before I retire? If heaven’s forbid you die before you reach the point of taking benefits from your Retirement Bond, the value of the fund can be used to either provide a lump sum for your dependents or a dependent’s pension depending on your individual circumstances.
9. How do I know if my Retirement Bond is performing well or badly? Buy Out Bonds generally speaking, are invested in pooled investment funds whereby you become owner of a certain number of “units” in a large fund. Unit prices are regularly published in quality newspapers and online, so you can easily and simply work out at any time what your fund is worth. In addition, you will receive annual statements that formally confirm the value of your fund. As your Financial Broker, we can also provide you with ad hoc valuations if and when you need them.
10. Can I change investment strategy? Your Retirement Bond is your investment and if and when you decide to change investment strategy you can and we’ll be there to help you.
If you’d like to find out more about Retirement Bonds, why not get in touch? We’re here to help and it costs absolutely nothing to chat!
Warning: The income you get from this investment may go down as well as up
Author: Fran Cooke