It is estimated that
90% of defined benefit schemes in Ireland are in deficit and that the pension
schemes of 200,000 individuals are in danger of collapse with the new rules
regarding funding requirements. You will
most likely see more of your clients coming to you asking what to do next.
The defined benefit
scheme was the holy grail of pension schemes for a long time. You were guaranteed a certain level of
pension in retirement based on your years of service and salary. What you effectively have is a promise and
now you must ask yourself what value you
can put on a promise from a scheme which is in deficit. When advising clients who are considering
exiting a defined benefit scheme, you must take particular care. The client is considering giving up what
could be a very valuable benefit, if the scheme can deliver on the
promise. However, if there are doubts as
to the ability of the scheme to deliver or even survive, you would need to
consider whether the client would be better off taking a transfer value now and
putting those funds to work for them.
When an individual
ceases employment or leaves a company pension scheme, or the company pension
scheme is wound up, there are a number of options available to them. Taking the transfer value to a buy out bond
is becoming increasingly popular among clients.
The trustees of the existing company pension scheme will establish a buy
out bond in the individual’s name and transfer the value of their benefits to
the bond. The aim is to put the
individual in control of their pension benefits. The buy out bond has fewer restrictions with
regards to investments and often more favourable costs than a PRSA. The buy out bond can also provide greater
flexibility when accessing benefits.
Independent
Trustee Company has recently launched their new Buy Out Bond. To find out more about ITC’s BOB download our Brochure & Terms
and Conditions.
ITC Consulting
For
further information contact our team to discuss:
