Leaving Employment or Facing Redundancy? What Are Your Pension Options?

Changing jobs, taking a career break, or facing redundancy can be a stressful experience. Amid the immediate concerns of income, expenses and finding new employment, one important financial asset is often overlooked: your pension.

Over the years, we’ve met many clients approaching retirement who have accumulated multiple pensions from different employers. In some cases, we’ve even helped clients uncover pension benefits they had completely forgotten about.

Because pension savings are generally inaccessible until later in life, they can easily fall off our radar. However, the decisions you make when leaving employment can have a significant impact on your retirement options, tax position and financial security in the future.

Can I Leave My Pension in My Former Employer’s Scheme?

Yes, in many cases you can. However, before deciding to leave your pension where it is, it’s important to understand the potential drawbacks.

1. You Could Lose Track of It

Once you leave employment, the trustees of the company pension scheme are not required to maintain regular contact with you beyond their statutory obligations.

If you move house, change your email address or simply lose touch with the scheme administrator, you may stop receiving updates and annual statements. Years later, when retirement approaches, locating the pension could become more difficult than expected.

2. You Have Limited Control

When your pension remains in an occupational pension scheme, important decisions continue to be made by the scheme trustees.

This includes:

• The investment strategy.
• The level of investment risk.
• Certain retirement options and access arrangements.

While trustees act in members’ interests, the pension is no longer directly under your control.

3. Accessing Benefits May Be More Complicated

If your former employer has been sold, restructured or ceased trading, tracking down trustees or scheme administrators can sometimes delay access to your retirement benefits.

While most schemes operate smoothly, complications can arise where records are incomplete or contacts have changed over time.

4. Estate Planning Considerations

The treatment of pension benefits on death can vary depending on the type of pension arrangement.

In some occupational pension schemes, death benefits may be subject to scheme rules that determine how benefits are distributed. Depending on your circumstances, alternative pension structures may offer greater flexibility for estate planning and beneficiary options.

What Are My Options When Leaving Employment?

For many people, transferring pension benefits into their own name can provide greater flexibility, control and visibility. This is one of the areas a retirement planning review will look at.

The most suitable option depends on factors such as your age, service history, pension value and future retirement objectives.

Benefits of Taking Control of Your Pension

Potential advantages may include:

• Greater control over investment decisions.
• More flexibility around retirement planning.
• Easier consolidation of multiple pensions.
• Improved visibility of your overall retirement savings.
• Potential estate planning benefits.
• Access to ongoing financial advice and regular reviews.

Option 1: Refund of Contributions

If you have a relatively short period of service in your employer’s pension scheme, you may be entitled to a refund of your own pension contributions, subject to Revenue and scheme rules.

Employer contributions are generally not refunded to you and may revert to the scheme.

Whether this option is available will depend on the specific scheme rules and your period of membership.

Option 2: Transfer to a Personal Retirement Savings Account (PRSA)

A PRSA is a personal pension plan that remains with you regardless of where you work.

Benefits of a PRSA can include:

• Full ownership of the pension.
• Flexibility to continue contributions throughout your career.
• The ability to consolidate multiple pension arrangements.
• Greater investment choice.
• Ongoing access to professional advice and reviews.

A PRSA can be particularly attractive for individuals who expect to change employers several times during their working lives.

Option 3: Transfer to a Personal Retirement Bond

A Personal Retirement Bond, also known as a PRB or a Buy-Out Bond, is often one of the most popular options for employees leaving an occupational pension scheme.

A PRB allows you to preserve the pension benefits built up with your former employer while placing the pension in your own name.

Key Advantages of a PRB

Full Control

You decide:

• How the pension is invested.
• The level of investment risk.
• Who advises you on the pension going forward.

Consolidation and Simplicity

Many people accumulate several pensions during their careers. A Personal Retirement Bond can help simplify retirement planning by bringing pension arrangements under professional review and management.

Potential Access from Age 50

Depending on individual circumstances and legislation at the time of retirement, benefits may be accessible from age 50 in certain situations.

Estate Planning Flexibility

Personal Retirement Bonds can offer attractive death benefit options, depending on personal circumstances and the prevailing legislation and Revenue rules.

Tax-Free Cash Opportunities

One of the most attractive features of certain Personal Retirement Bonds is the potential to preserve or “ring-fence” tax-free cash entitlements under Revenue rules.

In some circumstances, this may allow future growth on the tax-free portion of the pension to be retained as part of your tax-free retirement benefit.

As pension legislation and Revenue rules can change, professional advice is essential before making decisions based on these features.

Why Professional Advice Matters

Every pension is different.

Factors such as your age, length of service, pension value, retirement objectives, tax position and future employment plans all play an important role in determining the most suitable course of action. Our guide to common pension mistakes in your 40s and 50s covers several of these in more depth.

What works well for one person may not be the best solution for another.

A comprehensive pension review can help you understand:

• What benefits you currently have.
• Whether any old pensions have been overlooked.
• The options available to you on leaving employment.
• Potential tax implications.
• Opportunities to improve your overall retirement planning strategy.

Speak to Medical Financial Advisors

If you have recently changed jobs, been made redundant or simply want to review your existing pensions, now is an excellent time to take stock of your financial plan.

You can choose a consultation that suits your circumstances, or get in touch if you would prefer to talk it through first.