Happy New Year! It’s Officially 2017, and I genuinely wish you every success in whatever you are aiming for in the coming year.

How can I take my Pension? The first part of the answer to this question was launched last week (click here), and this week we tackle the second part to this, getting our money from pensions we have ‘through work’, most often known as company schemes or occupational pension schemes. So, how do I get my money from my company pension you might ask, we here we go, and yes we are going to ‘cakify’ it again!

Trustees:

When you are drawing from a Personal Pension as we saw in Blog# 15 you are tied to the Revenue ‘rules’ when accessing it at retirement. However in the case of Company Schemes you are most often tied to the ‘rules’ as set out by the Individuals who generally oversee and manage that particular pension scheme. These Individuals are known as ‘Trustees’ and more often than not they are experienced in this space, have to compete ‘Trustee Training’, and are bound to act in accordance with the pension scheme ‘mandate’ which sets out how it should be managed. So the ‘trustees’ are acting in the interests of the people who have ‘cake in the oven’!

What is a Defined Benefit Pension Scheme & How Do They Work?

If you work with a company that is promising to pay you x % of your ‘final salary’ when you finish, and the x is based on the number of years you have worked with the company at that point then you may well have a Defined Benefit Pension, yeeehaaaa! They are generally a great thing to have as the size of the cake at the end is largely dependent on how long you serve in the scheme instead of how much ingredient you yourself add to it!

If you have a DB here is how you can most often access your cake.

1. You can take a slice of cake immediately upon retirement up to a max equivalent to 1.5 times your final annual gross salary. If you have worked between 20-40 years in that scheme you may qualify for that max slice of cake. You do with this what you wish, happy times!
2. You are then drip-fed cake each month until you/your spouse passes away. As noted above the amount of cake which you are drip-fed will depend on the number of years you have been in that pension scheme as an employee.

Typically these schemes pay you 1/60th of your final year’s salary for every year you have served. So if you were 20 years in the scheme you may expect to get 1/3 of your final salary as your gross income for the rest of your days, separate to any State Pension entitlement. If you had 40 years service you may qualify for the max of 40/60ths, 2/3rds of Final Salary! Not too shabby I’m sure you’ll agree!

These Defined Benefit schemes are a dying breed, the cake requires a huge amount of ingredients and the burden can often be too much for employers to bear, they then stop cooking this particular cake and direct employees into the next and often less favourable type of pension cake – but the one that is reality for the vast majority of employees and business owners.

What is a Defined Contribution Pension & How Does It Work?

You will know you are in a ‘DC’ cake if you are told that you need to put ingredients in, your employer may or may not put ingredients in, and that the size of the cake at the end will be subject to how well the cake gets on in the oven, there’s no promises made from the employer. If you are a Director with an Exec Pension or a Self-Administered Pension scheme, this is most certainly a defined Contribution scheme also.

In short the only thing defined with a DC scheme is the contribution you are making, hence the name! Unlike the DB above you are not told ‘do x years here and you will get x every year when you retire’. In many ways a DC scheme is very similar to a Personal Pension as we heard about in Podcast 16.

How Do I Access My Money From a Defined Contribution Company Pension Scheme?

Almost everyone in a Defined Contribution Company Pension will have the choice of one of the following two methods to access their funds.

A) Drip-Feed Cake Method:

1. Take up to max of 1.5 times annual final salary immediately and eat that slice as they wish – if you do this option you have to then….
2. Give the remaining cake to a Life Insurance Company and they will drip feed you a small slice of cake each year (annuity) until you/your spouse pass away (as taxable income)

B) Your Own Cake Tin Method:

1. Take 25% of the cake at retirement as tax free slice (first €200k totally tax free, anything above that to €500k max at 20% tax)
2. If you have guaranteed €12,700 of cake each year from other source you can do any of the following a) pop the remainder in your own cake tin (ARF), and access it as you need it (can be very tax efficient and enable high control over your own cake) b) Give the rest to a Life Company and they will drip-feed you a slice each year (annuity) c) take it all as a fully taxable lump sum (usually not beneficial)
3. At retirement if you do not have guaranteed pension incomes of €12,700 you must lock away €63.5k of your cake until you are 75. If you then have remaining funds left over at this point you can pop this into your own cake tin and eat as you like as per #2

So there you have it, pheewww! There is a lot to how we claim our pension funds, and their are nuances to all of the above depending on your situation – so seek professional help before taking action. This and the previous blog have been an introduction to it, to informing you as to what the finishing line looks like currently.

As always when the time comes for you to put plans in place to give yourself the retirement you want you can refer to these and they should help you on the road to making informed decisions. Info was correct at time of writting Jan 2017. See our full disclaimer for prudent use of this Blog!

Thanks for engaging and sharing.

Paddy Delaney

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Recommended Reading:

Firestarter Sessions- Danielle LaPorte (Great Read/Listen!)

Audio Book Here!

Actual Book Here! (Could not find it online on any of the Irish Books Sites)