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Saturday 22 July 2017

Your Questions: What should I do with my €150,000 pension fund now I've been made redundant?

Find the right advice on retirement funds. Photo: Stock Image
Find the right advice on retirement funds. Photo: Stock Image

Peter Griffin

I was recently made redundant and my pension is available to me as I'm 58. My pension fund is currently worth about €150,000.

Should I leave my pension where it is, should I move it to a PRSA or buy-out-bond, or should I take some of it in a lump sum and put the remainder into a PRSA fund

Tom, Cashel, Co Tipperary

You have raised a number of issues here. First, let's address whether you should leave your pension where it is or move the funds to a Personal Retirement Savings Account (PRSA) or buy-out-bond.

As a former employee (deferred member), you have the right to leave these funds in the pension scheme. If your employer meets the cost of administration and advisory expenses and the investment strategy is appropriate, then there is no compelling reason to transfer the funds. However, if you are meeting some or all of the administration expenses from your funds or if the investment strategy is inappropriate, it may be better to take ownership of your funds and switch them to a PRSA or a buy-out-bond.

Generally speaking, a PRSA will have higher charges than a buy-out-bond. Take independent advice on the selection of a buy-out-bond or PRSA provider to ensure the investment strategy meets your requirements. Be sure too to ask about the set-up and ongoing charges under the product.

As you are over 50 and have left employment, you are entitled to access these funds now. Whether you should access your funds is going to depend on your financial circumstances. Ideally, you should try to delay accessing your retirement fund for as long as possible as this will give more time for your pension fund to grow and equally important, less time to depend on the income.

You mention that you left your last employment due to redundancy: if you waived your right to a tax-free lump sum from your pension fund, this may impact the advice below.

If you access the funds now you have two options. First: 25pc of the fund (€37,500) can be taken tax-free. Then of the remaining €112,500 of funds the first €63,500 will be transferred to an Approved Minimum Retirement Fund (AMRF) and the balance of €49,000 to an Approved Retirement Fund (ARF).

From the age of 61, you will be compelled to take an income of 4pc from the funds in the ARF and you may take up to 4pc income from the AMRF. You can take more income from the funds in the ARF if necessary - however, this is likely to speed up the depletion of these funds.

The second option is for you to take a tax-free lump sum calculated by reference to your years of service and salary with your employer. Although this may result in a higher lump sum, any remaining funds after taking the tax-free cash will have to be used to purchase an annuity with a life-assurance company.

Generally it is wiser to wait as long as possible before accessing your pension. If you do opt to draw down your funds, the ARF/AMRF option is likely to give you the most flexibility. Take independent advice before making any final decisions.

I became self-employed a few years ago - after working as a full-time employee for almost 20 years. I had a pension with my previous job but could no longer contribute to it once I left that job. So a couple of years ago, I opened a PRSA and I have been saving some of my self-employment income into that PRSA each month. I lost a big contract recently and struggling financially. I am not now in a position to contribute to the PRSA monthly. Am I able to stop saving into the PRSA until I start earning enough to do so again? And if I'm not saving a certain amount into my PRSA each month or year, can my PRSA provider close down my PRSA?

Marie, Newcastle, Co Wicklow

It should be possible to stop or suspend your regular monthly contributions to your PRSA until such time as you can afford to recommence them. As a self-employed individual, you may only access your PRSA account once you are over the age of 60 and you may do so at any time of your choosing before the age of 75.

My wife and I are approaching 65. I have been a full-time teacher for 40 years and my wife is a full-time clerical officer in the county council. I have a small farm which we farm jointly and my wife has rental income from her mother's house. We pay tax and PRSI on our salaries - and on the farm and rental profit. Will we be entitled to the State pension as well as our pension from our jobs?

Peter, Kinsale, Co Cork

To qualify for a State pension (contributory), you must be aged 66 or over and have paid enough Class A, E, F,G, H, N or S social insurance contributions. Historically, most public servants in membership of an occupation pension scheme paid a modified or reduced rate of PRSI (Class B, C & D). It would be unlikely for a teacher or civil servant who commenced their career 40 years ago and who has paid modified rate of PRSI throughout their career, to qualify for a social welfare contributory pension.

In 1995, full-rate PRSI was extended to all new employees of the categories of public sector employees to whom a modified PRSI rate had traditionally applied. Those on modified Class D PRSI make a higher contribution towards occupational pension than those on Class A. Conversely, those on Class A have a higher PRSI contribution, given that they are providing for a State pension.

I  worked as a permanent school teacher for 35 years and paid PRSI - but not the full rate. During the course of my employment, I also worked for a charity and was paid occasionally. I paid tax and PRSI on all earnings from the charity since 1999.

I worked part-time for the charity from 2010 to 2012 and full-time from 2014 to date.

Will I have any entitlement to the contributory State pension from the age of 66?

Mary, Killester, Dublin 5

It is very unlikely that you will qualify for a social welfare contributory pension based on the modified PRSI contributions made under your employment as a school teacher. Whether you qualify for the State contributory pension from your other earnings will depend on the amount of contributions paid before reaching retirement age. In order to qualify, you must meet the "average contribution" conditions applying to these benefits and this is probably the most complex aspect of qualifying for a State contributory pension.

The normal average rule states that you must have a yearly average of at least 10 appropriate contributions paid or credited from the year you first entered insurance (which in your case this is likely to be 2010) to the end of the tax year before you reach pension age (66). An average of 10 entitles you to a minimum pension; you need an average of 48 to get the maximum pension.

You should check with the Department of Social Protection to see what benefits you may be entitled to under your employment with the charity.

Email your questions to lmcbride@independent.ie or write to 'Your Questions, The Sunday Independent Business Section, 27-32 Talbot Street, Dublin 1'.

While we will endeavour to place your questions with the most appropriate expert to answer your query, this column is a reader service and is not intended to replace professional advice.

Peter Griffin is a Director with Allied Pension Trustees www.alliedpensions.com

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