You may have the option of transferring your benefits on wind up to a Personal Retirement Savings Account (PRSA). This will be an option if you have less than 15 years service in the pension plan that is winding up.
Issues to consider if choosing between a PRSA and a PRB
If your scheme is winding up you may have to decide between transferring your pension into a PRSA or into a Personal Retirement Bond (PRB). The issues to consider are:
- Choice of Investment Fund
- Choice of benefits at retirement
- Retirement Lump Sum
PRSAs cannot carry an initial charge when they are transferred from another scheme. Personal Retirement Bonds (PRBs) will also typically have no initial charge, and may even have a small initial bonus on transfer.
PRSAs tend to have an annual management charge of 1%. This is higher than the typical charge for a PRB, which stands at 0.75%
In almost every respect, charges for PRBs are lower than charges for PRSAs, although there can be rare exceptions. Notably, however, some PRBs carry exit charges for any transfer away or early retirement in the first 1 to 5 years after the initial transfer into the PRB.
Choice of Investment Fund
PRSAs carry restrictions on the types of investment permissible, and for this reason PRBs typically offer broader fund choice than PRSAs. There are exceptions to this however, and in practice most individuals should have sufficient fund choice to satisfy them in any good PRB or PRSA. If you wish to invest in property or complex self-directed options, however, a PRSA may not be right for you.
Choice of benefits at retirement
At retirement, if you have opted for a PRSA, you will have the option of purchasing either an annuity or an ARF/AMRF after you have taken your Retirement Lump Sum. The ARF/AMRF option is not available for PRBs where the scheme that wound up was a defined benefit pension scheme.
Retirement Lump Sum
Retirement Lump Sums at retirement are calculated on a different basis for PRSAs and PRBs:
- PRSAs: At retirement, 25% of the accumulated fund can be taken as a retirement lump sum
- Normally, unless the source of the PRB is a Defined Contribution pension, the level of your Retirement Lump Sum will be determined by your salary and service at the employment in which you originally built up your pension entitlements.
There is no definite answer as to whether a PRB or a PRSA will provide a higher retirement lump sum. This will depend on your transfer value (i.e. the value of your personal entitlements being transferred out due to the wind up), your personal years of service, your final salary with the employer who provided your original pension and the manner in which you eventually take your retirement benefits. If the transfer value is significant, it may be best to look for fee-based advice on this aspect of the decision.