Personal Retirement Bond / Buy Out Bond

 

It is now common for people to work for multiple companies throughout their working life with many people not only changing employers but even changing careers on a few occasions. This can lead to numerous pension pots building up which tend to be scattered across various pension providers. This generally leads to little or no management of these pension pots.

 

What is a Personal Retirement Bond?

A Personal Retirement Bond which can also be referred to as a Buy Out Bond is a pension set up in your own personal name that can receive transfers from an occupational pension scheme. This is generally done when you leave service but it can also be done in certain circumstances while you remain in employment or if your pension scheme is being wound up.

A Personal Retirement Bond / Buy Out Bond will give you much more control over the pension, how it is invested, and also when you access it.

All pensions should serve a purpose in your overall financial plan with different investment strategies selected depending on when you plan to access them and your expected drawdown pattern. Not many people realise that different pension pots can be accessed at different times. Many people may only access a small pot initially if, for example, they work in a part-time capacity in later life. Staggering pension drawdown can be used for effective tax and estate planning purposes. Everybody's circumstances will be different so a unique financial plan should be devised taking account of your cash flow needs and various pots of wealth you have accrued.

 

Advantages of a Personal Retirement Bond (PRB)

• You have control over how the funds are invested.
• Personal Retirement Bond has access to a wide range of funds with exposure to different asset classes. f
• Some Personal Retirement Bond's can offer multi-currency accounts should there be the requirement.
• The balance can be passed onto your estate tax-free. Capital Acquisitions Tax (CAT) rules will still apply.
• You can access these funds from age 50 up until age 70 if you want to access the tax-free lump sum.
• You are not compelled to retire the PRB and pay imputed distribution until age 70 if there is no need to access the funds.
• You can transfer the funds built up in your Buy Out Bond to another Buy Out Bond at any stage if needed.
• You can transfer the funds built up in your Buy Out Bond to an occupational pension scheme if you become a member of one in the future although you have more options if you keep the Buy Out Bond Separately.
• They can be of benefit to those pensions for which a Pension Adjustment Order is applicable.

 

Disadvantages of a Personal Retirement Bond (PRB)

• A Personal Retirement Bond / Buy Out Bond is very much an Irish product which can cause problems should there be plans to drawdown the pension from another jurisdiction, with the main issue being around taxation. This is a complex area but strategies can be put in place to try to avoid these pitfalls. We have vast experience in assiting clients put appropriate plans in place taking such circumstances into consideration.
• There generally won't be a default investment strategy in a Personal Retirement Bond so this option should only really be considered if you are willing to work with a prefessional financial advisor or if you want to make investment decisions yourself.
• There will be charges associated with a Personal Retirmet Bond so it is important to compare these against the current scheme and assess the potential added value by moving to a Personal Retirement Bond.

 

How does the transfer from company scheme into a Personal Retirement Bond work?

Step 1: You request 'Leaving Service Options' from your current occupational pension scheme.

Step 2: You set up a PRB with a pension provider and the funds are then transferred from your occupation pension scheme

Step 3: The funds are invested in line with your financial plan and attitude to risk.

Step 4: The funds remain invested until such a time that you wish to draw down the benefit. The earliest this can be done is at age 50.

 

 

What happens when you drawdown (retire) the PRB?

You will be able to take a lump sum from the PRB. This is generally tax-free but it could be liable to tax depending on the value of your other pension benefits and whether you have taken any tax-free lump sums in the past.

You then have three options with the balance:

Option 1: Purchase an annuity (an income for life).

Option 2: Take the balance as a taxable lump sum.

Option 3: Invest in a post-retirement pension structure known as an Approved Retirement Fund (ARF)

 

Cash flow modeling is a really good exercise to carry out with a financial advisor in helping you decide the most appropriate time to access your various pension pots taking account of cash flow needs, tax position, and estate planning wishes.

 

Next Steps

Contact us for advice on whether a PRB is the right option for you. We will assist you in selecting the most appropriate PRB considering your circumstances and help you put in place an overall retirement plan ensuring that all your pension funding is working for you to reach your desired retirement.

The Central Bank does not regulate Tax Advice, Qualified Recognised Overseas Pension Schemes or Estate Planning.

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.