Personal Retirement Bond Donegal
What is a Personal Retirement Bond Donegal (PRB) also known as Buy Out Bond (BOB)?
A Personal Retirement Bond Donegal (PRB) is a pension plan which receives a single contribution. It aims to provide a fund you can use to buy pension benefits. This plan is designed to receive a transfer payment from your company pension scheme or another personal retirement bond that you have. Once this plan is set up, it becomes your own personal plan in your name. PRBs are also known as buy out bonds.
You can consolidate your pension benefits from the various jobs you may have held throughout your career into Buy Out Bonds, which you own and control.
The value of benefits you may have built up in a former employer’s pension scheme are calculated and this ‘transfer value’ is then paid into your Buy Out Bond.
Once in the Buy Out Bond, the ‘transfer value’ is then invested in a fund or series of funds. Because you control the Buy Out Bond, you choose how to invest this money and when you can draw on it.
This level of control is a great benefit of a Buy Out Bond. If you leave your pension benefits in former employers’ schemes you have no control over how the funds are invested.
Buy Out Bonds are also a flexible product. You can transfer the funds built up in your Buy Out Bond to another Buy Out Bond with a different life insurance company at any stage or you can transfer them into another employer pension scheme, if you join one at a later date.
If you die before drawing on the Buy Out Bond, the value of the funds in your Buy Out Bond at that stage will be paid to your estate, for the benefit of your next of kin.
I’ve moved jobs a couple of times over the years, how do I keep track of my pensions?
As you move jobs you may start to accumulate small pension benefits in different employer pension schemes. When you leave a job, you will have to decide what to do with the pension benefits you may have built up in your former employer’s pension scheme.
There are three basic options:
- You can leave the benefits to grow in that scheme until you retire. This option can throw up a challenge when it comes to your retirement as you may have to go back and try and contact these former employers to gain access to your pension benefits.
- You can transfer your benefits to your new employer’s pension scheme, if you will be joining such a scheme. You will get these benefits when you retire from your new employer.
- You can transfer your benefits to a Buy Out Bond (also called a Personal Retirement Bond). A series of Buy Out Bonds in your name can become the hub for all the pension benefits you may have built up over the years at your different jobs.
Where you hold a pension in a former employer’s defined benefit pension scheme, there are a number of factors to consider before making a decision to transfer your funds to a new employer’s scheme or to a Buy Out Bond.
You should talk to a trusted advisor about the pros and cons of transferring now or waiting to get the pension from the scheme when you retire.
When you leave a job you will have to decide what to do with the pension benefits you may have built up.
My former employer is winding up its defined benefit pension scheme. What are my options?
Personal Retirement Bond Donegal
If your former employer winds up its defined benefit pension scheme, you have three choices:
- You can transfer your benefits to your current employer’s pension scheme, if you are a member of such a scheme.
- You can transfer your benefits to a Buy Out Bond, which you can take out in your own name with a life insurance company.
- You can transfer your benefits to a PRSA provided you have less than 15 years’ service in that pension scheme.
Remember: If you fail to make a decision, the trustees of your former employer’s pension scheme will transfer your benefits to a Buy Out Bond of their choosing, for you. Talk to a trusted advisor about the best strategy for you. They will assess your situation, your personal circumstances and ultimate plans for retirement and advise on the best option for you.
How do I decide where to invest my Buy Out Bond?
You may be relying on your Buy Out Bond to provide an important source of income in retirement, so it’s vital that you invest it wisely. There are many options available to you, from low and high-risk funds investing in particular types of assets, to managed or mixed funds investing in a spread of assets and self-directed funds where you choose the funds or assets in which you invest.
The funds you decide to invest in should offer you a diversified range of investment options that can meet your changing circumstances over time. Any choice you make should be based on the level of investment risk you are comfortable with and should take into account your financial circumstances and goals. It is important to understand that the value of your Buy Out Bond can fall as well as rise, depending on which funds or assets you invest in. You should always seek advise from a trusted pension advisor who will help you decide how and where you should invest.
With help from a trusted pension advisor, you can create a diversified range of investments within your buy out bond
The fund that is right for you depends on the following:
- The amount of risk you are willing to take
- Low-risk funds aim to protect your investment from large falls in value, but the potential for large gains is lower than if you choose a higher-risk fund.
- Higher-risk funds, such as those investing in company shares, do not aim to protect your investment from large falls in value, but you do have the potential to gain much more, especially over the long term.
If you invest in these types of funds, you should realise that, in wanting a higher return, you need to accept that the value of these funds can move up and down, sometimes by large amounts.
The return any fund can provide is not guaranteed and you could lose some or all of the value of your investment.
- How long you want to invest for It is important to consider how long you have left until you retire. If you are many years away from retirement, you may be able to accept more risk than somebody who is quite close to retirement
Switching investment options
You can switch your contributions from one fund to another at any time if you decide you want a lower-risk or higher-risk investment. There is no cost for this – all you need to do is tell your plan provider.
Life styling Investment strategies
Along with the usual investment options most plan provider will also offer a choice of life styling strategies. Life styling involves gradually moving your own choice of funds to a mix of medium-risk and low-risk funds as you move closer to retirement.
Long-term pension planning often involves investing in high-risk funds to benefit from potential long-term growth. However, as you get nearer retirement, the amount of risk you are comfortable accepting will probably reduce.
These strategies are suitable if you want to invest in high-risk or medium-risk funds over the term of your pension plan but want to move gradually into a mix of medium-risk and low risk funds as you get nearer retirement.
Life styling strategies are not suitable if you have chosen to invest in low-risk funds. This is because Life styling will switch your chosen funds into higher-risk funds which you may not be comfortable with.
Life styling will lead to a lower value pension fund if stock markets are rising in the years leading up to retirement. However, Life styling investment works well if there is a large fall in markets in the years leading to your retirement. This is because your chosen funds are switched into medium-risk funds and also partly into a cash fund which is a low-risk fund.
How a trusted pension advisor can help you with your investment choice.
Your advisor will get to know you, your financial needs, attitudes to and capacity for investment risk and ultimate goals. They will guide you through the basic elements of investing – risk and return, diversification and your own attitude to risk – and ensure you understand what’s at stake. With help from an advisor you can create a diversified range of investments within your Buy Out Bond. This means you can spread your money in a way that suits your needs and is in line with your risk and return expectations.
Personal Retirement Bond Donegal
How can I access the funds from my Buy Out Bond?
Depending on the type of pension scheme from which the transfer value paid into your Buy Out Bond came from, you will have a number of options when it comes to taking your retirement benefits:
- You may be able to take part of the fund as a lump sum
- You may be able to use the balance to buy an annuity, or
- You may be able to transfer the balance to a mix of an Approved Retirement Fund (ARF) in your own name. This depends on whether the pension scheme, you took the transfer value from, provided this option to you at the time of transfer to your Buy Out Bond.
Remember: You can draw on your Buy Out Bond from age 50 onwards. If you become seriously ill before the age of 50, you may be able to draw on your Buy Out Bond immediately. \
Your advisor will be able to explain how you can access your Buy Out Bond benefits when the time comes.
So, you can use the money you have built up in your PRB in a number of different ways, by choosing option 1 or 2
1. Take a maximum retirement lump sum of up to 1.5 times your salary.
2. Use the rest to buy a pension for life (annuity).
3. If you have made Additional Voluntary Contributions (AVCs): ARF or taxable cash sum
- Take a retirement lump sum of 25% of your retirement fund.
- Use the amount left to buy a pension, ARF, taxable cash sum.
All payments made under this plan must be within the Revenue Commissioner’s limits. The same Revenue Commissioner limits apply to this PRB and to your original scheme
Retirement Lump Sum
You can take up to 1.5 times your final salary as a retirement lump sum if you have 20 years’ service at your normal retirement age. If you have less than 20 years’ service or you left service before your normal retirement age, your provider will reduce the retirement lump sum based on the limits set out by the Revenue Commissioners.
You must use the rest of the fund to buy a pension for life (annuity).
You may be able to take some or all of your retirement lump sum without paying any tax. The maximum tax-free amount you can receive is €200,000.
If you have a retirement lump sum of between €200,000 and €500,000, you will have to pay standard-rate income tax which is currently 20%.
Any retirement lump sums more than €500,000 will be taxed as income at your marginal rate.
Your provider will also take Universal Social Charge (USC), Pay Related Social Insurance (PRSI, if this applies) and any other taxes or government levies due at that time.
Both the €200,000 and €500,000 limits include all retirement lump sums you have received since 7 December 2005. If you have more than one PRB relating to the same employment, it is only possible to take a retirement lump sum from the benefits provided by one of these bonds.
Your adviser can give you more information about what you are entitled to.
Buying a pension for life
You can use the rest of the PRB (if any) to buy a pension for life (in other words, a regular income which will be paid for the rest of your life, otherwise known as an annuity).
You can choose from a number of different types of pensions, including the following.
- A pension paid to you for at least 5 or 10 years. This means that if you die during this period, your provider will pay the pension direct to your dependants up to the end of the 5 or 10-year period.
- A pension which will increase. This means your pension increases each year, to take account of inflation, when it is being paid.
- A pension for your husband, wife, registered civil partner or dependant. This means that if you die, we will pay a pension to them until they die.
The type of pension you choose will affect the amount of income your pension fund can provide.
Annuity rates at the time of buying your pension will also affect the amount of income your fund will provide.
Your adviser will be able to give you more information on this.
You may qualify for an enhanced annuity based on information on your lifestyle and medical history (and that of your dependant if this applies). Enhanced annuities offer a higher income than standard annuities – this is because they work on the basis that, if you have a medical condition, you’ll have a shorter life expectancy than somebody in a better state of health.
When you retire, you can shop around the life companies for the best offer to buy a pension.
Your pension is treated as income so you will have to pay income tax on it and any other taxes or government levies due at that time.
Your AVC fund can be invested as follows
If you had made Additional Voluntary Contributions (AVCs) into your original company pension scheme, you can use this part of your fund to buy a pension for life, transfer to an ARF or take as taxable cash
Approved Retirement Fund (ARF)
An ARF is a personal investment fund from a qualified fund manager that you can manage and control during your lifetime and leave to your family when you die.
An ARF gives you a choice of how you use your fund. You can:
- decide where you want to invest your money by choosing from a wide range of investment options.
- make withdrawals from your fund as and when you need them (you will be taxed on all withdrawals from your ARF fund); and
- use your ARF to buy a pension for life (annuity) at any time.
The money you invest in an ARF may be reduced if the level of income you take is high and the investment return is not high enough to maintain this or is lower than expected.
When you die, any money left in your ARF will pass to your estate. All qualified fund managers are required to take tax from ARF funds every year as if you had taken a minimum withdrawal.
Making regular withdrawals from an ARF may reduce the value of your fund, especially if investment returns are poor or you choose a high rate of withdrawal (or both). It is possible that your ARF could run out before you die.
Taxable cash sum
After taking your maximum retirement lump sum, you may take the rest of the fund as a cash sum. You will have to pay tax on this at your highest rate of income tax and any other tax due at that time.
Retirement lump sum
You can take 25% of the fund as a retirement lump sum. If you have more than one PRB from the same employment you must take your benefits from these at the same time.
With the rest of the fund, you can choose from the following.
1. Buy a pension for life
As described above
- Take out an Approved Retirement Fund (ARF)
As described above
- Taxable cash sum
As described above
Maximum pension fund
The maximum pension fund allowed from all sources when you retire for tax purposes is currently €2,000,000. This is called the standard fund threshold (SFT). Any fund more than €2,000,000 will be taxed at the higher rate for income tax.
This tax is taken from the pension fund before your retirement benefits are paid to you. If you have a personal fund threshold certificate issued from the Revenue, your maximum pension fund at retirement may be more than €2,000,000. You should contact your adviser for more details on this.
Family law and pensions
If you go through a judicial separation, divorce, dissolution of a civil partnership or your relationship with a qualified cohabitant ends, a pension adjustment order may be made for the benefits under this plan.
A pension adjustment order issued by the courts will override the terms and conditions of this plan. This will direct the plan provider to pay all or part of the benefits under this plan when you retire or die to any person named in the pension adjustment order.
If a pension adjustment order has been granted on your plan, you must let the plan provider know.
There is no option to establish an independent benefit within this plan.
Beneficiary of a pension adjustment order
If, following a judicial separation or divorce, you were granted a pension adjustment order on your former husband’s or wife’s, registered civil partner or qualified cohabitant’s company pension scheme or PRB, you can transfer the benefit designated for you into this PRB.
If you do this, the PRB will be in your own name and separate from your former husband’s, wife’s, registered civil partner’s or qualified cohabitant’s pension and from any other pensions you have. The earliest you can take retirement benefits from your PRB will be from the date your former husband, wife, registered civil partner or qualified cohabitant reaches 50 years of age
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Personal Retirement Bond FAQ’s
What is the minimum contribution?
Can I use my PRB benefits if I retire early?
What are my options if I want to continue working after my normal retirement age?
If you continue working after normal retirement age, your options are:
- delay taking your PRB until you retire – this can’t be later than your 70th birthday; or
- take your PRB benefits at your normal retirement age.
If you don’t continue working after normal retirement age, you must take your PRB benefits at your normal retirement age.
Can I top up my PRB?
Can I transfer a PRB into another PRB?
Can I transfer my PRB into a pension scheme?
Can I transfer my PRB into a PRSA?
Can I have more than one PRB?
If your retirement lump sum is based on your salary and service with the relevant employer, the scheme trustees will confirm which PRB is to pay your retirement lump sum.
A transfer contribution from a company pension scheme to a PRB must be for all your benefits in that scheme. You can join another company pension scheme, either with the same employer or with another employer, at a later stage. If you have a PRB and a company pension relating to the same employment, you must take the retirement benefits from both at the same time.
Can I use my pension plan as security for a loan?
Do I have to pay tax on my pension?
Under current Irish tax law, when you retire you can take some of the fund as a retirement lump sum. You will have to pay standard rate income tax (currently 20%) on any retirement lump sums between €200,000 and €500,000.
Any amounts over €500,000 will be taxed as income at your marginal rate. The USC, PRSI (if this applies) and any other taxes or government levies due at that time will also be taken. You will have a number of options as to how you can use the rest of your pension fund, and how you are taxed will depend on which one you choose.
- If you choose to buy a pension for life (annuity), your income will be taxed as income in the normal way and will include any tax due at that time
- If you choose to invest in an ARF, you will have to pay tax on any withdrawals that you make.
Under current Irish tax law, the maximum pension fund allowed for tax purposes is €2,000,000. The relevant maximum will apply to the total of all pension funds you may hold. You will pay tax on any amount over this as a one-off income tax charge when you take it when you retire. Tax will be paid at the higher rate of income tax.
What happens if I have to retire early because of ill health?
What happens if I die before I retire?
If you die before you retire, the value of your PRB is available to your estate.
If when you left your company pension scheme you had completed at least two years qualifying service as a member of the pension scheme, the value of your fund will be paid to your estate as a lump sum.
If you are a member of other company pension schemes relating to the same employment and you die while employed by the scheme employer before you take your retirement benefits or leave those schemes, the maximum lump sum may be restricted.
The maximum lump sum is four times your salary (including lump sums from any other company pension or Personal Retirement Bond (PRB) relating to this or any previous employment), or twice your salary (including lump sums from any other company pension or PRB relating to this employment).
The value of your employee contributions and AVCs can also be paid as a lump sum.
The balance of the value of your fund can be used to purchase an annuity or invest in an ARF for your spouse and/or someone who is financially dependent upon you such as your children up to the age of 18, or age 21 if in full-time education or vocational training.
The maximum annuity or ARF investment cannot exceed the maximum annuity that could have been provided for you.
Your dependants may have to pay inheritance tax depending on who inherits the benefits. Irish tax law changes over time and we would advise that you get independent tax advice on this
Can I take money out of my PRB?
Can I cancel a pension?
They will refund any single contributions or transfers, less any fall in investment values during the period to the transferring trustees or the existing PRB provider and in line with Revenue rules. Before cancelling, you should be sure that you have made other arrangements for your retirement.