Case Study 6 – Choosing a Personal Retirement Bond when moving employments

Nicole (not real name) aged 41, had worked in a company which had an occupational pension scheme, into which she contributed 5% of her salary which was matched by her employer with an equal contribution to her pension fund. She left this employment after 16 years contributions.

She contributed additional voluntary contributions (AVC’s) from her annual bonus in some years to boost her retirement fund. Her retirement age under this scheme was just 60. Her fund stood at €116,000 approximately. She left this employment to start a new job with a new company which operates a pension scheme with a normal retirement age (NRA) of 65.

Nicole was issued with leaver option statement from her previous employer’s pension scheme and realizes she has more options than she thought, namely:

1. Leave in the old scheme until she reaches retirement age of 60 before accessing.

2. Transfer fund to a personal retirement bond (PRB) in her own name.

3. Transfer to a new occupational pension scheme.

4. Transfer to a personal pension/PRSA.

Nicole seeks advice as she is considering transferring her old pension fund from her old employer out of that scheme rather than leaving it in the scheme.

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We carry out a full personal financial review to properly establish her personal circumstances. Her new employer pension scheme is up and running and she is contributing 5% of her salary annually with a matching 5% from her employer, and the NRA under this new scheme is 65. Nicole will have to wait until she is 68 to receive the state pension arising from new legislation in Budget 2011. We explain the pension scheme leaver options in detail to Nicole.

One of the key details we noted was the different NRA’s between the two schemes. If Nicole transferred her old pension fund into the new pension scheme, the NRA of 65 of the new scheme would apply. Therefore, the NRA of 60 under old scheme would be lost. The flexibility that Nicole could access some of her retirement fund at 60 was appealing and she ruled out transferring to new scheme. The PRB offered the best solution in this instance, allowing Nicole to transfer her full fund into this single premium insurance contract taking the rules of the purchasing scheme with it, principally NRA of 60. Thus Nicole now had more control over her pension fund and investment fund decisions and this removes the need to deal with old pension scheme trustees in the future. Furthermore, the PRB also offers greater flexibility with the opportunity to possibly access this fund from as early as 50.

Summary and Planning Strategy

Nicole now has a portion of her retirement fund in a PRB which is reviewed at least annually and over which she has full control over investment fund choice, allowing her to select the appropriate risk level for her and to switch between investment funds if and when she chooses to. Given that she had 19 years to invest before accessing the fund at NRA of 60, her capacity for risk was high. In addition, when Nicole completed a risk profile, her risk tolerance was for high risk also. We advised and she invested (personal choice) her pension fund in a selection of high risk funds, choosing 3 funds from the providers range that met with her criteria.

The risk strategy for Nicole in the coming years will be to revisit her attitude to risk and capacity for risk every year between now and retirement, ensuring that as she nears NRA of 60, that the risk profile of her investment is consistent with her attitude to risk and approaching low risk in the latter 5 years to reduce any volatility.

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