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There are many former bank officials at a certain stage in their lives who have not yet accessed their benefits from their Defined Benefit or Defined Contribution Pension. There can be many reasons, such as:
- They have not yet reached the eligible age (age 50 in the Republic of Ireland) that entitles them to take their benefits.
- They may have reached the eligible age and are not aware of their entitlement to take benefits before Normal Retirement Age-generally between 63 and 65 years of age.
- They may not be aware of options available to them other than an Annuity.
For example, with a Defined Benefit Pension, most people will take their benefits in the form of a tax-free lump sum and an annuity (Pension for Life). This is just one of a number of options available to them. Given the right circumstances, it may be more beneficial for them to take a transfer value of their pension fund to a retirement bond. By doing so, it immediately widens their options to include the “ARF” option.
With the “ARF” option, they can take 25% of their fund as a tax-free lump sum and invest the balance into a retirement fund, i.e. an AMRF (Approved Minimum Retirement Fund) and/or an ARF (Approved Retirement Fund). In this scenario, the tax-free lump sum can be significantly greater than with the Defined Benefit Option.
This can apply more especially to somebody who has relatively short years of service. Pensions are a complex area and there are multiple scenarios and options available to people. Also individual cases can vary greatly, as do the specific financial circumstances of person.
It is important, and often financially beneficial, to look before you leap and get good professional advice on the various options available. So, if you have a pension entitlement and have not yet taken benefits, now is the time to request a Benefit Statement/Retirement Options Statement. It makes good financial sense!
Michael Heaney is a Qualified Financial Advisor (QFA) and Retirement Planning Advisor (RPA). He is a Senior Financial Advisor with Charterhouse Private Clients Ltd t/a Clevermoney.
He can be contacted at Michael.firstname.lastname@example.org or 086 2836713.
The views expressed in this article are not the views of the Financial Services Union and should not be taken as advice or endorsement.