Buy Out Bond Guide. Freedom to move

Transcription

1 Buy Out Bond Guide Freedom to move

2 About the company About the company Aviva Life & Pensions Ireland Limited is a subsidiary of Aviva Life Holdings Ireland Limited, a joint venture company between Aviva Group Ireland plc and Allied Irish Banks, p.l.c. for the provision of life and pensions services in Ireland. Aviva is the world s fifth largest* insurance group, serving 50 million customers across Europe, North America and Asia Pacific. We are very proud of our strong reputation in Ireland. Our activities include pensions and life assurance, managing investments, general insurance and personal financial services. Our aim is to provide an efficient and professional service through a range of channels such as independent financial advisers, financial institution partners, branches and our website We are committed to understanding our customers and recognising their individual needs. From our breadth of products, range of innovative benefits and world class service to our dedication to providing security, quality and value, we are continuously developing our products and services to meet our customers requirements. * Source: Aviva corporate profile September 2009, based on gross worldwide premiums at 31 December 2008

3 What does this guide cover? + Who qualifies? General rules about who can have a buy out bond and how they are set up. 2 + What s best for me? Outlines the pros and cons of choosing a buy out bond. 3 + Savings with a difference Explains how buy out bonds are different from savings accounts and outlines the restrictions about access to your money. 4 + Retirement options Details of when you can retire and what your options are. 5 + Getting advice Who you should talk to about your pension plans. 9 What will I get from reading this guide? Who should read this guide? Anyone who is leaving a company pension, usually due to changing job. Anyone whose company pension fund is being transferred to a buy out bond by the Trustees. Anyone who wants to understand more about their buy out bond and how it works. What will this guide tell me? It will explain all about buy out bonds in clear and simple terms. Most of the rules and options in a buy out bond are set in law, or by the Revenue Commissioners. This guide outlines those rules and options which apply to any buy out bond product you buy. What will this guide not tell me? This guide only gives general information on buy out bonds. It will not explain product specific charges or options. For information on your product choices, please read our product guides for pensions or talk to your Financial Adviser.

4 Who qualifies? A buy out bond is a pension bond into which you can transfer your fund if you leave your company pension scheme. When do I have to decide if I want a buy out bond? You have up to two years after you leave a company pension to transfer your fund to a buy out bond. Outside of the two year period you can still transfer to a buy out bond if the Trustees agree. How is my buy out bond set up? The bond is actually set up by the Trustees of your company pension. They apply for the bond in your name but once it is set up it belongs to you and the Trustees have no further involvement in it. Who chooses the buy out bond? You do. Even though the Trustees have to sign the application form, you can generally choose any buy out bond you like. Can the Trustees transfer my fund to a buy out bond without my consent? Yes, but only under certain circumstances: 1. if a company pension scheme is being wound up, 2. if the transfer value of your fund is less than an amount set by the Pensions Act, currently 3,809 and provided that: + you left the company at least 2 years ago, + you have not already requested a transfer to a buy out bond, and + you are notified at least 30 days before the Trustees intend to transfer your fund. 3. in any other cases where approval is given by the Pensions Board. 2

5 What s best for me? When you leave a company pension you have three choices as to how you use any pension fund to which you are entitled. You can: 1. leave it invested in your company pension until you retire, 2. transfer it to the company pension of your new employer, or 3. transfer it to a buy out bond in your name. What are the advantages of a buy out bond? There are several advantages, the main ones being: + The policy is issued in your name and belongs to you. Your previous employer and the pension Trustees have no further involvement. + You can choose when you take your benefits. This can be any time from the earliest date retirement was allowed under your company pension (normally age 50). You could choose to take the benefits as late as age 70 if you were still working to that age. + You choose the fund in which your money is invested. What are the disadvantages of a buy out bond? There are several possible disadvantages but most of them relate to older types of pensions called Defined Benefit Schemes. You need to check the conditions of your pension to know which disadvantages might apply to you. We also recommend that you talk to your Financial Adviser before making a decision. + Since you choose the investment funds, you also carry the investment risk. + You may lose out on benefit improvements for pensioners introduced to your company pension after you transfer out. + You may lose out on extra benefits which would be paid to your dependants if you died. + It may take you longer to be eligible for full leaving service benefits in a new company pension if you do not transfer your fund into their pension. 3

6 Saving with a difference Can I take my money out if I need it in the future? No. Once you have put money into any pension plan you cannot withdraw it until you reach retirement. Can I use my buy out bond as security for a loan? Pensions are non-assignable. This means that they can only be used to provide benefits for you or your dependants and cannot be signed over to anyone else. Some lenders will allow you to repay the capital part of a mortgage from your pension funds when you retire. These arrangements are often restricted to directors who have more than a 5% shareholding in the company and have more flexibility at retirement. Any agreement to use part of your retirement fund in this way must be made between you and the lender and a separate contract is required. Can I provide extra protection for my family? Buy out bonds do not have the option of providing extra protection benefits. If you want life cover or income protection cover you must set them up separately from the buy out bond. Can I put more money into my buy out bond later? No. You cannot pay either regular or single premiums from your salary into a buy out bond. 4

7 Retirement options When can I retire? Normal Retirement Your normal retirement age is set by your company pension and does not change when you transfer to a buy out bond. It can be between 60 and 70. Early Retirement From age 50 you can take early retirement. You can also retire early if you are seriously ill. The Revenue Commissioners may allow retirement at any age if you are permanently unable to work. 5

8 Retirement options What options do I have when I retire? You will have a number of options to choose from when you retire. You don t have to choose now but can decide when you reach retirement age which option suits you best. Take a lump sum tax free When you retire you have the choice of taking a tax free cash lump sum. While this is not mandatory, most people take the maximum tax free cash allowed and then consider the other options open to them for the balance of their fund. The amount of tax free cash you can take at retirement varies depending on how long you have worked for the company and your salary when you left service increased to allow for inflation in the intervening period. The maximum tax free cash available if you have worked in the company for at least 20 years at normal retirement age is one and a half times your final salary. If you were a director with more than a 5% shareholding in the company whose pension you left you have the option of taking a lump sum of 25% of the fund tax free. Choosing this method of calculating tax free cash opens up the retirement options described in Option 2. Maximum tax relieved pension fund/tax free lump sum The maximum allowable tax relieved pension fund which you can have at retirement is 5,418,085, or, if higher, the value of your fund on 7 December Any excess over the limit at retirement will be taxed at 41%. The limits above include the aggregate value of pension funds from employment and self-employment. You will be entitled to take a lump sum from a pension plan of up to 1.5 times final salary or in certain cases, 25% of the accumulated value of your fund. These amounts can still be taken tax free up to an overall limit of 1,354,521. Any lump sum payment beyond the 1,354,521 will be taxed under the PAYE system. The limit applies to all pension lump sums payable from 7 December These rules do not apply to lump sum death-inservice payments and the limits will increase in line with the indexation of the maximum tax relieved pension fund above. 6

9 Retirement options Option 1: Buying an annuity After you take your tax free cash you must use the balance of your fund to buy an annuity unless you were a director with more than a 5% shareholding in your previous employer s company. An annuity provides you with a guaranteed income for the rest of your life. When you buy the annuity you have several additional options including guaranteeing the period of payment, automatic increases to allow for inflation and providing a pension for dependants. The options you choose to include will affect the amount of pension your fund can provide. You may use your fund to buy an annuity with any company you choose. Option 2: Investing in an Approved Retirement Fund for 5% Shareholders If you were a director with more than a 5% shareholding in your previous employer s company you do not have to buy an annuity. Instead you can invest your money in an Approved Retirement Fund and/or Approved Minimum Retirement Fund or withdraw your money. Approved Retirement Funds (ARFs) and Approved Minimum Retirement Funds (AMRFs) are funds managed by qualifying fund managers in which you can invest the proceeds of your pension fund when it matures. After you have taken your tax free lump sum, 63,500, or the remainder of the pension fund if less, must be transferred to an AMRF or used to buy an annuity payable to you. Any balance over 63,500 can be invested in an ARF or withdrawn as cash. Any cash withdrawn at this stage will be taxed as income. You do not have to invest in an AMRF if: + You have a guaranteed pension or annuity of at least 12,700 a year for life (all of your pensions and annuities including Social Welfare Pension can be taken into account for this purpose). Or + You are over age 75. The sum invested in an AMRF cannot be withdrawn until you reach age 75. However, income or growth in your investment in the AMRF may be withdrawn. Approved Retirement Funds Since 2007 there can be tax payable on a deemed or imputed distribution from an ARF. The rate of the deemed distribution was 1% of the value of your ARF assets at December 2007, which will rise to 2% in 2008 and 3% thereafter. Actual distributions made by you will be creditable against the deemed distribution charge. These rules will not apply until you are 60 years of age or over for the entire tax year. 7

10 Retirement options Overview of Option 2 25% of fund available tax free Balance of fund after tax free cash withdrawal Do you have guaranteed income of 12,700? No Yes 63,500 or fund if less to AMRF Balance of fund Take as taxable cash Invest in ARF Withdraw growth only to age 75 Take as taxable cash Invest in ARF Withdrawal Pay income tax At 75 Withdrawal Pay income tax and/or Deemed Distribution Tax Withdrawal Pay income tax Invest in ARF and/or Deemed Distribution Tax Summary of retirement options Employee 5% Director Tax free cash Annuity ARF Taxed Cash Annuity ARF Taxed Cash Max 1.5 x salary % of fund

11 Getting advice Who should I talk to about my pension plans? A Financial Adviser will be able to assess your personal situation and guide you through the complexities of pensions and tax planning. Planning your pension is a very important part of providing for your future and should be looked at in the context of your overall financial plans and goals. 9

12 Notes Any enquiries or complaints regarding your policy should be in the first instance be directed to our Pensions Department. We will endeavour to ensure that all matter in relation to your policy are dealt with in a satisfactory manner. In the event that you are dissatisfied on any matter, you have the right to refer your complaint to the Financial Services Ombudsman without prejudice to your right to take legal proceedings. Financial Services Ombudsman Bureau 3rd Floor, Lincoln House, Lincoln Place, Dublin 2 Lo-call: Fax: [email protected] Website: Disclaimer: This brochure has been produced by Aviva Life & Pensions Ireland Limited based on its understanding of the laws and practice current in October Warning: The value of your investment may go down as well as up. Warning: The income you get from this investment may go down as well as up. Warning: This product may be affected by changes in currency exchange rates. Warning: These figures are estimates only. They are not a reliable guide to the future performance of this investment. 10

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16 Aviva Life & Pensions Ireland Limited. A private company limited by shares. Registered in Ireland No Registered Office One Park Place, Hatch Street, Dublin 2. Member of the Irish Insurance Federation. Aviva Life & Pensions Ireland Limited is regulated by the Financial Regulator Aviva Life & Pensions Ireland Limited is a subsidiary of Aviva Life Holdings Ireland Limited, a joint venture company between Aviva Group Ireland plc and Allied Irish Banks, p.l.c. Life & Pensions One Park Place, Hatch Street, Dublin 2. Phone (01) Fax (01) Telephone calls may be recorded for quality assurance purposes