Changing jobs can be an exciting but sometimes stressful time. You get to learn new systems and meet new people, but there are things that need to be sorted out during this transition. One major item that is often overlooked is the pension you may have had with your previous employer. Most people either forget about that pension or think it is fine, leaving it where it is, but there are risks involved with doing that.

Are there risks in leaving my pension with my previous employer?

The main risk is that the employer goes out of business, while this is a remote possibility, it can happen. The recent collapse of Carillion is an example of this. It was totally unexpected, and now all those people who had Carillion pensions, both past and current, are contacting the UK’s National Employment Savings Trust to see if they will receive their pension benefits. Can you imagine the panic and anxiety that ensues after such an event? I think it is safe to say none of us wishes to experience this. The whole situation could have been avoided had the employees withdrawn their pension and taken control of it themselves. A second risk is that you are limited to the investment funds within the employer’s pension plan. By taking control of your pension, you are then free to select from a wide variety of investments. You can invest in funds, stocks, shares and properties. Getting the right advice is vital to ensure you invest in the product that is right for you. Your appetite for risk must be assessed before any investment is made.

What are my options?

Removing your pension from your previous employer is not a taxable event, as you are just transferring it from the employer’s pension scheme to a personal pension scheme. Therefore, you are not liable for tax of any kind. To balance my article, I must also tell you the downside of taking the pension from your previous employer’s scheme. Some pension schemes have benefits you would not receive in a personal pension plan. Once again, getting the right advice is vital to ensure you make an educated decision. I have helped countless clients navigate this process and would love to help you. Call me today to set up an appointment and see what option is best for you… and as always, there is no obligation with this appointment.

Investing in property is an excellent way of diversifying your pension investments – but not property abroad – property right here at home, in Ireland. Most Irish pension companies do not offer property funds and if they do, they are generally abroad or in a pool of properties. This makes it difficult for the investor to be clear on exactly where their money is invested. There are many options for the individual who wishes to invest their pension or part of their pension in to property. A self-administered pension is a solution that enables an individual to have flexibility of investment in various assets with transparency of fees.

Using Self-Administered Pensions to Diversify in Properties

With a self-administered pension you can invest in a single property or a syndicated property. In a single property you can invest in either a commercial or a residential property and you can pick the property, select the renter and also collect the rent. Of course all the rent collected is tax free. In a syndicated property you can also invest in either a commercial or a residential property but it allows you to invest in a bigger property with other pension or non-pension investors. The structure is usually a limited partnership with several investors. This will allow you to invest in a large property within your pension portfolio without having to invest a large sum of money. For example a commercial property selling for €1 million you can invest €100,000 and own 10% of the property. This gives your pension portfolio exposure to a commercial property that may not have been possible previously. One of our clients recently invested €50,000 in to a syndicated commercial property leaving him €200,000 to divide between 4 other properties.

As Ireland has recovered from the financial crises we are now moving into the expansion phase in a business cycle. Sole traders, executives and directors are looking to save tax on their income. A self-administered pension gives them not only tax relief but greater diversification on their investments, which in turn lowers their risk.

Pension Since 2008

Since 2008, pensions contributions have declined to a non-existent level; in fact many believed that pensions were dead. However over the last two years, pensions are being revived and a lot of individuals are beginning to contribute once again. This is a sign that that the economy has begun to improve. A great number of pension funds were diminished or in some cases wiped out during the financial crisis, which in turn left people nervous and reluctant to invest in their pension. Pensions with Irish Life, Aviva, Friends First, etc. are a homogeneous investment in funds that people traditionally invest in. When the majority of individuals receive a pension statement, they are unsure whether or not they are actually making money or what fees they are being charged. As investors become savvier, they are looking for other types of investments that they wish to diversify their portfolios with.

An Alternative Investment to Traditional Pension Funds

One investment currently worth looking at is property – but not property abroad – property right here at home, in Ireland. Most Irish pension companies do not really offer property funds and if they do they are abroad or in a pool of properties thus the investor is not aware of what they are invested in. So are there any other options for the individual who wishes to invest their pension or part of their pension in to property? A self-administered pension is a solution that enables an individual to have flexibility of investment in various assets and transparency of fees. Many believe that self-administered pensions died with the financial crises but this is simply not true. It is now even easier and more affordable for individuals to start a self-administered pension under any pension structure – PRSA, AVC, SSAP, ARF and AMRF. For example this type of pension allows an individual to pick a property and then purchase it in their pension, within the proper regulatory channels. They know exactly what they are invested in and it is tangible. They can also participate in pooled investments in commercial property for example and this allows them to receive a good yield on their pension investment. Tax relief is received on any contribution made to the self-administered pension fund; in fact they can make up for missed contributions since 2008. Contact me today and we can discuss the particulars of the self-administered pensions.

• Stocks or shares are a partial ownership of a publicly traded company.  Stocks can have a combination of capital growth and dividend payments.

• Not all stocks pay dividends, particularly growth stocks.

• There is no guarantee of capital and are subject to market risks.

• Depending on the industry, there could be specific risks.

• Stock in a different currency will encounter risk due to currency rate fluctuations.

• Stocks typically keep up with the rate of inflation.  This provides protection from deposits or savings that are not keeping up with inflation.

• Access to funds is quite easy, as stocks do not have a term.  There are commissions paid on purchase and sale of stocks.

• Stocks are subject to capital gains tax, if any gains and dividend withholding tax if dividends are paid.  There is an annual capital gain tax relief of €1,270.  Capital losses brought forward can offset capital gains tax.
• • Stocks kept in a portfolio help reduce risks from low interest rate investments.   They are suitable for investors who want capital growth and can accept a higher level of risk.

• Mortgage Protection Assurance is a lump sum benefit in the event of death, serious illness or both.

• Cover decreases each year in line with the mortgage.

• Optional benefits usually do not apply.

• Cover is in line with the term of the mortgage.

• Costs should be kept in line with the mortgage as payment of the mortgage is paramount.  Paying extra would be advised to ensure mortgage is covered.

• Costs vary by age, smoking status and policy term.

• Premiums and cover are guaranteed.

• No tax relief on premiums and no tax on benefit.

• Whole of Life Assurance is a lump sum benefit in the event of death, serious illness or both.

• Optional benefits can only be added on unit-linked policies.  An example of an additional option is indexation of benefits with inflation (cost of living adjustment).

• Cover is usually whole of life but could be dependent on an investment assumption. For example, if the policy under or over performs in unit growth or policy bonuses additional premiums might have to be paid to keep policy standing.

• Costs vary by age, smoking status and in unit linked cover investment / bonus assumptions.

• In unit-linked premiums and cover are not guaranteed and are subject to investment or bonus performance.

• In Whole of Life policies, premiums and cover are guaranteed and premiums are substantially higher than where guarantees do not apply.

• No tax relief on premiums and no tax on benefit.

• Temporary Life Assurances are a lump sum benefit in the event of death, serious illness or both.

• Optional benefits may be added; some examples of options are: conversion to permanent life assurance; indexation of benefits with inflation (cost of living adjustment).

• Term of coverage is usually between 30 to 35 years.

• Costs are the lowest and vary by age, smoking status and policy term.

• Premiums and cover are guaranteed.

• Tax relief may apply on premiums within certain limits and conditions; otherwise there is no tax relief on premiums and no tax on benefit.