If you are leaving employment with an employer that offers an occupational pension scheme to move to another employer or to become self-employed, you may be concerned about your accumulated pension benefits. What will happen to your pension when you leave your employer?

On leaving your employer, you will have various options open to you, depending on the rules of your pension scheme, and your personal circumstances.

If you wish to get information or advice on your occupation pension or on your options on leaving the service of your employer, the National Pension Helpline can assist you with free and impartial information and advice.

Table of Content

  • What is a Leaving Service Options letter?
  • Pension options when leaving your employer
  • Common pension mistakes made when leaving a company
  • Learn more about leaving service options

What is a Leaving Service Options letter?

A Leaving Service options letter is a letter or statement which outlines your pension benefit options.

You will receive this letter or statement from the pension scheme administrators shortly after leaving your employment.

This letter will have information such as details of your current pension, the options which are available to you in your specific situation, and a decision form where you select your preferred option.

Leaving Service Options letter

Pension options when leaving your employer

You have a number of options to consider in this situation and these will depend on how long you have been with your employer in pensionable employment.

The options are:

Essentially, you can do nothing and leave your accumulated pension benefits in the current scheme. This means that they became known as a deferred benefit or a preserved benefit and will be held until you retire. This may not be permitted with all pension schemes.

This may be a good option if you have a defined benefit pension, rather than taking a pension transfer value, but you may wish to have more control over your pension or have more choice in your pension investments. 

If your new employer provides an occupational pension, you may wish to transfer your old pension to your new pension. 

However, you may prefer to set up a pension in your own name which is independent of your employment if you may move jobs again in the future. This also has the benefit of allowing you more control over your pension and investment options.

You can choose to transfer pension benefits to a personal retirement bond (PRB) or a buy out bond (BOB). You may also be entitled to transfer your pension benefits to a PRSA in limited circumstances.

A personal retirement bond (PRB) allows you a higher degree of choice and flexibility over your pension benefits. You may have a choice of pension investment funds with your pension provider.

Retirement benefits can also be accessed from the age of 50 with a PRB, unlike other types of pension in Ireland.

You will only be eligible for a refund of member contributions if you have less than 2 years of pensionable service with your previous employer and this is allowed under the rules of the scheme.

Tax implications

If you choose to refund members of contributions, you will not usually be refunded any contributions made by your employer; the refund will be solely your personal contributions. Any contributions refunded will also be subject to tax at 20% as the contributions were not taxed in the first instance.

If you choose this option, you will risk losing out on any contributions your former employer made to your pension, and it is less tax efficient than choosing to transfer the gross contributions to a new occupational pension or another personal pension scheme.

If you are classed as an Outgoing Worker, i.e. you have worked in another EU member state, or are moving to another EU member state, you may not be required to pay tax on the refund.

Normal retirement age (NRA) is usually taken to be between the ages of 60 and 70. However, if you are aged 50 or above and have left your employment, you may be eligible to take early retirement. Whether you can take early retirement depends on the rules of your pension scheme and your having left employment before you start receiving pension benefits.

On taking early retirement, there are several options open to you. You can usually choose to take a maximum cash lump sum of up to 1.5 times your salary, if you have a certain number of years of pensionable service (20 years with some schemes).

Tax relief

The tax relief on lump sums at retirement varies, depending on the type of pension you have and amount you are eligible to take. €200,000 is the total limit on tax free lump sums you can take from all pensions.

Lump sums of €200,000 to €500,000 will be subject to 20% income tax, and above €500,000 subject to your marginal tax rate.

Retirement income

Having taken a lump sum, you may then have to use the remaining balance to purchase an annuity or income for life pension to provide you with an income in retirement, but you may also have the options to purchase an approved retirement fund (ARF) or take a taxable lump sum.

Depending on your pension scheme, you may be able to access your pension benefits immediately in cases of ill health. However, this is available in very restricted circumstances only.

It may be possible to transfer pension benefits from overseas or to another country in certain circumstances when you are leaving employment and before you have been paid any pension benefit.

Tax conditions

Revenue may permit overseas pension transfers in certain circumstances depending on the rules of the Irish and the overseas pension scheme, and other individual and regulatory conditions being met. 

The rules around overseas pension transfers are very complex, and you would be highly recommended to get financial and tax advice on doing so.

Common pension mistakes made when leaving a company

The key mistake you could make when leaving your employer is failing to seek advice in order to make informed decisions. 

While becoming a deferred member of your employer’s pension scheme may be the right decision for you, be wary of accepting this as a ‘default’ option.

It is essential to familiarise yourself with your available options, which depend on your age, length of pensionable service with your employer, and retirement goals.

Pension options such as an ARF or PRSA, where available to you, may offer the opportunity to maximise your retirement savings but may not be best for you if you are more risk averse so consider your risk preference as well as your preferences on retirement age and income levels etc.

Leaving your employer may be a key time to review your pension arrangements, ensure that you are maximising your contributions by age, and that your pension is the best ‘fit’ for your needs and preferences. It may also be an opportunity to consider early retirement if this aligns with your goals.

Learn more about Leaving Service Options

National Pension helpline is committed to providing you with reliable and impartial information on your leaving service options, and all things pension related.

Take control of your pension on leaving your employer and get all the information and advice that you need to make informed decisions about your retirement income.

Fill in our online form or call us today and avail of a free pension review and consultation with a qualified pension advisor to compare all your pension options and for pension information and support.

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