Learn why your world cruise at great risk today?

Learn why your world cruise at great risk today?

Baroness Ros Altmann, a former UK Pensions Minister is of the opinion that ‘the cash equivalent transfer values are so attractive and the freedoms for personal pensions now make Defined Contribution (DC) pensions far more user-friendly than ever before’. This quote was taken in direct response to the question ‘Why are Defined Benefit Schemes (DB) winding up?’

Transfer value

Taking a transfer value reduces the employers DB Scheme liabilities, so therefore they may provide ‘enhanced’ transfer values to encourage leavers. If you are close to retirement age you are first in the queue to get paid, however if you are perhaps 20+ years from retirement age, will there be funds left to meet your employers covenant of a fixed pension amount for life?

Just ask employees in Waterford Crystal, Irish Independent, AIB, British Home Stores and many more, about what happens when the sponsoring company gets into financial difficulties. Defined Benefit schemes are struggling. They are underfunded, mainly due to the cost of an annuity of €10,000 pa for an employee,increasing by over 50% in the last 10 years from €166,000 to €253,000, at age 65*. (Source https://goo.gl/u91zVa) Hence, a requirement for employee, employer or combination of to increase contributions, or alternatively people at the back of the queue will be left with nothing.

 

Control

Control is the major reason many are taking a transfer value. Employees that have changed jobs, known as deferred members, can take control. Existing employees can also take control where the DB scheme is being wound up, and most likely being replaced by a DC scheme. Transfer values are based off bond yields, which are relatively attractive today.

 

Risks

Taking a transfer value means you can decide how your fund is to be invested. This can be good, or it can be bad. The investment fund can grow tax-free in a retirement bond or approved retirement fund (ARF). Risks include volatility of short-term performance, the risk of being too conservative, and the risk of living too long, and ‘running out’ of money.

Death Benefits

At present, members of a DB scheme pension the pension may die with you, or at best a spouse may get 50% of it. Taking a transfer value provides control and ownership. It also provides an Approved Retirement Fund option, which means that residual funds can be passed onto dependents, as opposed to the pension fund dying with you.

Access

Taking a transfer value means you can access funds, or ‘retire’ from age 50.

Chief Economics Editor of the Financial Times, Martin Wolf, has said ‘at current ultra-low interest rates, the transfer value of a DB pension has become significantly overvalued.’

Defined Benefit scheme pensioners in payment have preferred rights versus active and deferred members in a scheme wind-up (not a joke). Furthermore, a DB scheme is open to rule changes outside members control eg retirement age increase, or indexation being cancelled.

To say there is some injustice in this is an understatement, but the reality is if the company goes wallop or decides not to pump in the increased funds required to meet the covenant

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Supplementary Pension, Learn if you qualify today?

Supplementary Pension, Learn if you qualify today?

Supplementary Pension, Do you Qualify?

Payment of a supplementary pension can arise where you retire, before turning 65 years old, from a public service position.

Where applicable, you must claim for your supplementary pension from the Department of Social Protection.  This stressful process should come with a health warning.

Supplementary pension may form part of the pension paid to retirees who paid full rate, Class A, PRSI contributions in respect of all or part of their pensionable service, and is also a possibility if you are buying back years or purchasing additional service.

The reason for the supplementary pension is that a Class A PRSI contributor retiring before age 65, would be significantly worse off than a Class D PRSI contributor.

In order to qualify you must first exhaust any entitlement to all other social welfare benefits such as job-seekers allowance.

Supplementary Pensions Explained

The supplementary pension payable, subject to certain T&C’s, is described as being ‘co-ordinated’. This means that the employer occupational pension is co-ordinated with either social welfare benefits or supplementary pension.

The purpose of the social welfare benefits, or supplementary benefit, is to provide equality for retirees with the same pensionable service regardless of PRSI status. Several sections of The Local Government (Superannuation)(Consolidation) Scheme 1998 have legislated for this.

Stress levels rise for the retiree applying for the supplementary pension. This is due to the fact that they must complete an intimidating and bureaucratic administration exercise. This process includes box ticking that you are currently available for gainful employment.

Requirements to qualify for supplementary pension

The Department of Social Protection may pay you supplementary pension where, you, as the retiree:

  1. Are not employed in any capacity which involves you payment of a PRSI contribution including self-employment.
  2. Fail to qualify for the following Social Welfare benefits or qualifies for such benefits at less than the maximum personal rate:
  • Jobseeker’s Benefit
  • Illness Benefit
  • Invalidity Pension
  • State Pension (Contributory)

In the case of Cost Neutral Retirement, generally Supplementary Pension is not payable before age 60 or 65 . This is dependant on what age Normal Retirement Age is under the employer pension scheme.

Supplementary Pension Application Process

The application process will require you to apply for Jobseekers Benefit. This is where you have retired and are not actively seeking employment yet you must indicate that you are seeking work.

Job seekers benefit will most likely be declined or may be payable for a period of nine months (or until your PRSI entitlements run out).  Should this benefit run out it will become means tested.

At this stage, there may be a requirement for you to get evidence in the form of a stamped letter, from the Department of Social Protection. This will outline whether you are not entitled to any payment, or are only entitled to payment at reduced rates of any social welfare benefit.

Therefore retirees can, on application to their employer, make up the shortfall in pension for the period between date of retirement and the age of eligibility for State Pension (Contributory).

This is the process that provides equality for retirees.

Individual cases will differ particularly in relation to social welfare entitlements. When dealing with our clients planning for retirement, we discuss your individual circumstances in detail.

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