Ever wondered what to do with your Previous Employer Pension?
Our clients are the type that wants to know the dimensions of the ‘retirement pool’ they are about to jump into. They have a lot to consider. Some are confused at what they should be doing as they cannot see their lifestyle in retirement from where they are right now. That is normal. With a goal-based strategy which can have a varying degree of discomfort at times, our clients will plan their retirement with our planners. It provides clarity and demystifies retirement for them. It brings a certain control that our clients want.
Multiple Pension Pots
Our careers are very different to those of our parents, who tended to place a greater emphasis on long-term employment and therefore had a single pension pot. Times have changed and it is not inconceivable that our generation could have between 5 and 8 different jobs over the lifetime of our working careers. What I do know is most of our clients have built up multiple pension pots. People need to take control of these pension plans, one of the options they consider is transferring their old pension plan to a Personal Retirement Bond (PRB), also known as a Buy Out Bond (BOB).
Personal Retirement Bond
Pre-Retirement, the popular option over the last few years is the PRB, no doubt about it. It gives control, the security, and the choice our clients crave. A PRB is where you can transfer your pension fund if you leave a company pension scheme or if the pension scheme is being shut down. This is an invaluable pension plan and one which can grow and be managed for you. This is a pension vehicle that divorces you from your old employer. You have split all ties and you will now take ownership of your pension. You will still be able to follow the old scheme rules such as retirement age and how you draw down on your pension.
Sitting down with your financial planner, you will find the funds and the strategy that matches your appetite. Getting the right advice is the key thing!
You will also be able to access your PRB from age 50 so you will not have to wait for your normal retirement age under the old scheme rules. You don’t have to access the 25% tax-free lump sum, but the option is there should you need it. Some of our clients keep their funds in the PRB until they are ready so they can allow their pot grow undisturbed. Some of our clients like the idea of accessing the lump sum to meet future financial commitments such as their children’s education costs, to pay a lump sum off their mortgage, pay for home improvement, a parent in a nursing home, a family holiday or just to have cash in the bank. They do this if it makes sense for them.
My high-level thoughts are, If you leave a company then why would you leave them in control of your pension fund?
What are the advantages of a PRB?
- You can make a clean break from your old employer’s pension scheme.
- You can choose from a wide range of investment options to meet your needs.
- You continue to receive tax free investment growth.
- You will receive clear information on your entitlements on an annual basis.
- You decide when to draw down benefits. *
- You do not have to transfer benefits to your new employer scheme.
*Subject to the rules of the scheme from where the money came and to Revenue rules.
What are the disadvantages?
- Sometimes the charging structure is higher than the old scheme – but sometimes you get what you pay for!
Everyone is different and what is right for you may not be right for someone else. This is where impartial advice plays such an important role. You can choose your retirement actions, or you can choose your retirement consequences, but you can’t choose both. Take the Advice!