People hoping to retire early now have more choice and ownership of their pensions than ever before because of new rules for pensions introduced by Minister for Finance, Michael Noonan TD earlier this year. That’s according to EarlyRetirement.ie, Ireland’s leading financial advisors on early retirement and pensions.
The new pension rules come at an important time as the Central Statistics Office (CSO) projects that the number of older people (65+) will increase by 63% in the Midlands region including Offaly, between 2016 and 2031. Furthermore, in their QNHS Module on Pensions (Q4, 2015), the CSO found that over three quarters of workers who were members of an occupational or personal pension scheme expected their pension to be their main source of retirement income.
The new rules mean that members of defined benefit pension schemes will now be able to purchase approved retirement funds (ARFs) with the proceeds of their pension fund. The new rules will be of particular interest to people who have a pension with a previous employer and want to explore the options that are now available to them given the rule change as well as for people who have a previous employer based pension and the scheme is in difficulty.
Encouraging Offaly natives to find out how they might benefit from the new pension rules, Johnny Mulholland, Managing Director of EarlyRetirement.ie explained: “Previously, if you were retiring early, you were forced to buy an annuity. An annuity is a pension for life. You give your lump sum to life assurance company and they give a percentage of that back to you as income for the rest of your life. This is what we tend to think of when we hear pension.
“However, with the new rules, after you withdraw the lump sum, you can reinvest the pension funds and take the money out when you need it. You can take the 25 per cent as a tax free lump sum and invest the balance as you wish with an approved retirement fund (ARF). You can take a monthly amount to live on or you can invest some or all of it into investment funds that track the performance of bonds, shares or the property market.”
Many companies are under considerable pressure to maintain their defined benefit pension schemes for a number of reasons including low economic growth across the Eurozone; low bond yields; the impact of the Brexit vote; and the introduction of a requirement to hold a statutory Risk Reserve from January 2016.
Mr Mulholland continued, “People in a defined benefit scheme with a large deficit will benefit greatly from the rule change as they can avoid the inherent risk of a scheme which is finding it challenging to meet the minimum funding standards including reducing members’ benefits; offering a reduced transfer value; and winding up the scheme entirely. Non-retired members of defined benefit schemes do not enjoy the same security as retired members.
“If you have concerns that your former employer will not be able to back up their pension promise, it’s a good time to take back control by taking advantage of a transfer value as this pension value will be secured for a specific guaranteed period before it potentially decreases. In addition to this, ARFs allow people to change what happens to their pension when they eventually die – for example, when a person dies, their spouse can take ownership of the fund and on their death, the balance can be inherited by the couple’s children or indeed, left to whomever they wish.”
For more information, please visit www.earlyretirement.ie.