QI

Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE -

have an old de­fined ben­e­fit (DB) pen­sion scheme from a pre­vi­ous job – and a de­fined con­tri­bu­tion (DC) pen­sion scheme with my ex­ist­ing em­ployer. I have about five years to go un­til I re­tire. Is it true that I have bet­ter op­tions at re­tire­ment with my DC scheme than my DB scheme? I have heard that I am re­stricted with what I can do with my DB pen­sion when I come to re­tire. Imelda, Dun Laoghaire, Co Dublin DE­FINED ben­e­fit (DB) schemes only of­fer the op­tion of an an­nual pen­sion and/or a lump sum at re­tire­ment. Lump sums are cal­cu­lated by a for­mula re­lat­ing to fi­nal salary and ser­vice — with a max­i­mum lump sum payable of one-and-a-half times fi­nal salary.

All de­fined con­tri­bu­tion (DC) pen­sion ar­range­ments (in­clud­ing Per­sonal Re­tire­ment Bonds) now have ac­cess to an ad­di­tional set of op­tions. In ad­di­tion to the op­tion of an an­nual pen­sion, DC pen­sions can pay lump sums of 25pc of the ac­cu­mu­lated fund at re­tire­ment, and in­vest the re­main­der in an Ap­proved (Min­i­mum) Re­tire­ment Fund — A(M)RF — post-re­tire­ment. An A(M)RF is a per­sonal as­set which pro­vides greater flex­i­bil­ity in terms of how in­come is ac­cessed post re­tire­ment, when com­pared to the tra­di­tional DB an­nual pen­sion. How­ever, there is a risk that you could out­live your A(M)RF if you draw funds out too quickly. This is not a risk you need to worry about if get­ting an an­nual pen­sion from your DB scheme.

If you die be­fore your A(M)RF is spent though, it can be passed on as part of your will. DB pen­sions usu­ally have spouses or de­pen­dants pen­sions in­cluded. This means that in the event of your death while in re­ceipt of a DB pen­sion, if you had a spouse or a de­pen­dant still alive, some of your pen­sion would con­tinue in pay­ment to them af­ter your death. If your spouse pre-de­ceases you or you no longer have de­pen­dants, then the DB pen­sion ef­fec­tively dies with you.

So in short, the ad­van­tages which a DC scheme might have over a DB scheme in­clude the po­ten­tial for greater lump sums, flex­i­bil­ity in terms of ac­cess to in­come, and flex­i­bil­ity for suc­ces­sion plan­ning.

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