A former employer of mine is winding up its defined benefit pension scheme and they have sent me a list of various options in respect of my so-called 'transfer value'.
I am confused about what to do and find the whole pension issue perplexing.
Ella, Ennis, Co Clare
The ongoing wind-up of defined benefit pension schemes is an unfortunate reality in the pension landscape in Ireland. While it may initially seem like bad news to be involuntarily transferred out of a defined benefit scheme, there are some silver linings, particularly if the defined benefit promise was not capable of being kept in the first place!
When it comes to transfer values, you usually have three options: transfer your pension benefit to a new occupational scheme of which you are a member, transfer to a personal retirement bond (PRB), or transfer to a Personal Retirement Savings Account.
The first option, which is only available if you are a member of an occupational pension scheme, involves you transferring the value offered by the trustees of your old pension scheme into your current one.
The second option - the PRB or buy-out bond - is an individual arrangement designed specifically to invest a transfer value. It is typically a standalone arrangement taken out with an insurance company with you, the bondholder, having investment control over the assets. There are potential "early retirement" benefits associated with this option, with a PRB capable of being accessed from the age 50.
The final option, the PRSA, is only available in certain limited circumstances - you must have less than 15 years' service as a member of the pension plan, for example.
I am the main breadwinner in my home. I am worried what might happen my family if I am ever unable to work for health reasons. The company I work for does not operate a sick pay scheme and I am not sure if I am entitled to any state disability benefit. Would it be a good idea to take out income protection?
Hughie, Lusk, Co Dublin
An income protection policy is designed to replace your wage in circumstances where you have been certified as unable to work due to illness or injury.
There is typically a deferral period before the cover kicks in. The deferral period is measured in weeks. You usually have a choice of taking a deferral period of 13, 26 or 52 weeks. A longer deferral period, of say 52 weeks, can reduce the cost of the policy - however, you will have to bridge the financial gap out of your own resources for those weeks. This could be a considerable drain, particularly if there is no sick pay scheme in place.
Income protection can pay up to 75pc of your normal pay, less any state disability benefit you receive. You should be entitled to State disability benefit if you are a regular employee and have paid a certain amount of PRSI contributions. If you make a claim under an income protection policy, the payment you get will be treated as income and subject to tax, USC and PRSI in the normal manner.
The cost of any income protection policy depends on a number of factors including age, health, occupation and the term of the policy. You'll be glad to have income protection to fall back on should you need to make a claim.
Stephen Barry is a director of City Life - the Cork-based wealth advisors.
Sunday Indo Business