How to Transfer Your Pension

Managing your pension effectively is essential for securing your financial future, especially if you're planning on changing jobs, consolidating multiple pension pots, or taking more control over your investments. Transferring a pension can be a complicated process, but with the right guidance, it can also be highly beneficial, giving you increased control and simplifying retirement planning.

FitzGerald Flynn Insurances Ltd, a leading pension advisor in Dublin, has helped countless individuals and families navigate the complexities of pension transfers. In this guide, we’ll take you through the various pension types, the scenarios in which transferring your pension might be beneficial, and the steps involved in each transfer process.

Understanding the Main Types of Pensions in Ireland

Before diving into pension transfers, it’s important to understand the types of pensions available in Ireland that one might need to transfer. The most common pension schemes are Occupational Pensions, Personal Retirement Savings Accounts (PRSAs), and Buy Out Bonds (BOBs)/Personal Retirement Bonds (PRBs).

Occupational Pensions are employer-provided schemes, which come in two forms:

• Defined Benefit (DB): In a DB scheme, your pension payout is determined by your salary and years of service. It offers a guaranteed income, but these schemes are becoming less common due to high costs for employers.
• Defined Contribution (DC): In a DC scheme, your payout depends on how much you and your employer contribute and how well the pension fund’s investments perform.

PRSAs are personal pension plans that offer flexibility. They allow you to contribute directly to your pension, while your employer can also make contributions. PRSAs are a popular option for individuals who want more control over their pension.

Buy Out Bonds (BOBs), also known as Personal Retirement Bonds (PRBs), are often used when you change jobs but still have a pension plan with an old employer. Buy Out Bonds can act as one central hub where all of your pension benefits from different jobs accumulated over the years are stored. They give you full control over your pension pot, allowing you to manage and invest it as you see fit.

When Should You Consider Transferring Your Pension?

There are several scenarios where transferring your pension makes sense. One of the most common is when you’re changing jobs. If you have an employer pension scheme, you may need to decide whether to leave your pension with your former employer, transfer it to your new employer’s scheme, or take control by transferring it to a PRSA or BOB.

Another scenario is consolidating multiple pension pots. Transferring older ‘paid up pension’ into PRB’s or BOB’s would be in your best interest as it will allow you different options at retirement. 

If you are going from being employed to being self-employed, then you will want to transfer any occupational pension plans into a PRSA that you can manage yourself. 

For those looking to gain more control over their investments, transferring a pension to a PRSA or BOB is often the best choice. This allows you to select where your funds are invested and monitor their performance closely.

Lastly, if you’re nearing retirement or your employer’s DB scheme is closing, transferring your pension might be necessary to ensure you have full control of your retirement savings.

How to Transfer Different Types of Pensions

A. Transferring a Defined Contribution (DC) Pension

For individuals with a defined contribution (DC) pension, transferring your pension when you leave a job can be highly advantageous. In Ireland, there’s an important rule to keep in mind: if you leave a job before completing two years of service, you’re entitled to a refund of your own pension contributions, but your employer can retain theirs. However, once you’ve worked for over two years, the entire pension pot—including your employer’s contributions—becomes yours.

If your new employer has a DC or PRSA scheme, it may or may not be in your interest to transfer your paid up benefits to the new employer's scheme. This is because, at retirement, you will have different options when taking your pension benefits. This is why talking to a pensions advisor such as ourselves is so important. 

In comparison to transferring a Defined Benefit pension, the process of transferring a DC pension is relatively straightforward. You’ll need to inform both your current pension provider and the new employer’s pension administrator, ensuring that all necessary paperwork is completed. Consulting with a financial advisor like FitzGerald Flynn Insurances is essential to ensure the process goes smoothly and that you don’t miss out on any benefits.

B. Transferring a Defined Benefit (DB) Pension

Transferring a DB pension is more complex than transferring a DC pension. While some DB schemes allow transfers, many do not, and there are often strict conditions and very high transfer values, known as an Enhanced Transfer Value, associated with the transfer. DB pensions provide a guaranteed income in retirement, so transferring them can sometimes mean losing this guarantee in exchange for a lump sum or a new investment. Given the complexity, it’s crucial to speak to a financial advisor before transferring a DB pension to ensure you’re making the best decision for your long-term financial security.

C. Transferring a PRSA

Transferring a PRSA is typically a simple process. You can transfer your funds to a new PRSA provider or, in some cases, to an employer’s pension scheme. One of the key benefits of a PRSA is the flexibility it offers, both in terms of contributions and investment options. The transfer process generally involves completing a transfer request form and working with both your current and future pension providers to ensure a seamless transition.

Outcomes and Benefits of Transferring Your Pension

Transferring all your ‘paid up’ pensions into BOB’s under the one insurer can be a good idea as you approach retirement. Having all your pensions in one place provides clarity on your overall retirement pot and allows you to track its performance more efficiently.

Another major benefit is gaining more control over your investments. Whether you transfer to a PRSA or BOB, these options give you the flexibility to decide where your pension is invested, allowing you to choose funds that align with your financial goals and risk tolerance.

Additionally, transferring your pension can simplify administration, especially as you reach retirement and are looking to access your pension pot. Instead of having to contact each past employer, you have one central place to manage your retirement savings. It would also mean that in the event of ill-health, a nominated person would only have to deal with one insurer ensuring your affairs are looked after cleanly.

Pitfalls and Risks to Consider

Transferring your pension can offer several advantages, but it also comes with potential risks that need to be carefully evaluated. One of the first considerations is whether there are any penalties or fees associated with transferring your current pension plan. Some pension schemes may impose charges for leaving early, and these can significantly reduce the value of your pension pot. Before making any decision, be sure to thoroughly check for these exit fees and weigh them against the benefits of moving.

It’s also essential to understand if your current pension plan offers any guaranteed annuities or rates that you may lose upon transfer. These guarantees can sometimes provide substantial benefits in retirement, but they are often buried in the fine print of your pension agreement. Switching to a new provider could mean a lower retirement income if these guaranteed rates are not matched, so always seek advice from an independent financial advisor to ensure you are fully informed.

Another important factor is the tax implications of transferring your pension. Different pension plans may have varying tax treatments, and a transfer could affect the final value of your pension pot when it’s time to draw down.

If you're moving to a new pension provider, it is common to be offered a cooling-off period during which you can reconsider your decision. While this can provide some peace of mind, you should check if you are entitled to return to your old provider under the same terms and conditions if you change your mind. Not all providers will accept you back on the same arrangements, and this could result in a less favourable deal if you revert.

Some pension providers offer bonuses or loyalty rewards to discourage transfers. These can be especially valuable in the long run, as they enhance the final payout. Before transferring, it’s worth checking if you’re entitled to any bonuses that you would forfeit by moving and assessing whether the benefits of the transfer outweigh these potential losses.

For those transferring from a Defined Contribution (DC) scheme to a pension plan like a PRSA or Buy Out Bond, bear in mind that the responsibility for managing the pension’s growth and the associated risks shift from your employer to you. This means the investment performance of your pension will depend entirely on the decisions you make, adding a level of risk that might not have been present under your employer’s scheme.

Lastly, consider your age and proximity to retirement. The closer you are to retirement age, the less beneficial a pension transfer may be. You could be exposing yourself to unnecessary risks, such as market volatility, just when you need to safeguard your retirement savings. For those nearing retirement, transferring a pension may not provide the same advantages as it would for someone earlier in their career, so it's crucial to assess whether the move aligns with your long-term financial goals.

Recommendations and Tips for a Smooth Pension Transfer

To ensure a smooth pension transfer, working with a pensions and financial advisor such as FitzGerald Flynn Insurances is essential. An advisor will help you assess the best course of action for your unique situation, provide advice on which pension scheme to transfer to, and guide you through the paperwork involved in the transfer process.

It’s also important to review all transfer options. Before making a decision, evaluate the benefits of transferring to a new employer’s scheme, a PRSA, or a Buy Out Bond. Each option has its pros and cons depending on your specific needs, and a financial advisor can help you make the best choice.

Finally, keep track of all pension documents. Make sure you have a record of every step in the transfer process, including communications with pension providers, to avoid any future complications.

Final Thoughts

Transferring your pension is a significant decision that can impact your retirement planning for years to come. Whether you’re looking to consolidate pensions, gain more control over your investments, or ensure your pension is properly managed as you switch jobs, understanding the options and potential pitfalls is essential.

For professional advice on transferring your pension, contact FitzGerald Flynn Insurances Ltd, one of Dublin’s leading pension advisors. With our expert guidance, you’ll be able to make informed decisions and ensure your financial future is secure.