Pensions & Enhanced transfer values

Enhanced Transfer Values are offered to former employees as a one-off opportunity to transfer the value of their pension fund. The value of this transfer is often high. It is therefore important for you to make an informed decision. Sometimes, it can be overwhelming to make a decision, which is why we decided to explain it more clearly. 

What are Enhanced Transfer Values?

An Enhanced Transfer Value is offered to former Defined Benefit pension scheme members. A defined benefit pension provides a guaranteed annual income for the rest of your life. Your employer pays into your pension plan and is responsible for ensuring that there is enough money in your pension pot when you retire. 

Therefore, if you have worked for a company that offered you this type of pension, and left that job, you are now considered a “Deferred member” of that pension scheme. Deferred members are those who are past members of an occupational pension scheme and have not yet reached retirement. As a deferred member, you might be contacted by your old employer, and offered a transfer value to move your pension.

Indeed, an Enhanced Transfer Value consists of withdrawing cash from your current pension and transferring it to another pension arrangement. Your former employer will give you a cash value that you can move into another pension. 

In addition, it’s important to know that the amount of money offered might be very large for a short period of time. However, you won’t be able to take the money as cash. You will need to make a decision, whether to keep it in your current scheme or transfer it to another one. 

The pros and cons of Enhanced Transfer Values

Should you take an Enhanced Transfer Value? In order to make an informed decision, you need to be aware of the benefits and drawbacks of this process. Especially, since your employer generally won’t give you a long period of time to decide. Therefore, you will have to make a decision quickly. 

Pros of ETV:

Cons of ETV

  • The temporary value is very high.
  • You can control how your fund is invested.
  • You’ll be able to get a higher tax-free lump sum.
  • These benefits are easier to inherit.
  • There may be a default product set up for you to move this transfer value.
  • The income is not a guaranteed or set amount.
  • Invested funds can fall in value as well as rise in value.
  • There are management charges for your investment fund.
  • Short space of time to make your decision.

 

However, you should always contact a qualified financial advisor before you make your decision. A financial advisor will be able to assess your situation and give you personalised advice. In many cases, your former employer will pay for a company to give everyone financial advice. But you can choose to get your own professional advice about your Enhanced Transfer Value offer. 

Why is my old employer offering this?

Employers often use Enhanced Transfer Values to reduce the liabilities and costs on the scheme. Also, they use them to preserve the fund long term for people who currently work for the company. 

Example:

Ruth is 52 and used to work for a company with a Defined Benefit Pension Scheme. Plus, she was contacted about an Enhanced Transfer Value, to move her fund. Usually, the transfer value her former employer would offer is €280,000, but for a short time, they are offering her €400,000.

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What does Ruth decide to do, and why?

  • Ruth decides to take the offer. She has a pension scheme in her current job, so she feels that she understands the risk of investing. Moreover, she knows that the fund may fall as well as rise.

  • While the former employer’s pension gives her a guaranteed income in retirement, she isn’t married, so she doesn’t need to be able to leave 50% of her annuity to a partner. 

  • She would like to be able to use the higher 25% tax-free lump sum for home repairs. 

  • She wants to be able to leave inheritable funds in her estate. In addition, Ruth has one daughter, and her home is valued at €500,000, which is over the €335,000 inheritance threshold. 

  • When Ruth dies, she wants there to be some cash in her estate for inheritance tax purposes.

 

How can we help? 

The most important thing to do is make sure that you seek advice quickly. Figuring out if the offer will benefit you can be complicated, and it’s important to be very clear about the offer & your options. If you have been offered an Enhanced Transfer Value by your former employer, you can get in touch with one of our qualified financial advisors.

We will provide affordable and personalized financial advice. By assessing your situation and the offer made by your former employer, we will be able to direct you down the right path.

Book a free 15 minute consultation with a financial advisor. 

Greenway Financial Advisors Limited is regulated by the Central Bank of Ireland. Registered No. C168372

Debbie Cheevers

Debbie Cheevers

Qualified Financial Advisor

Debbie was born in Dublin and graduated from NCAD with a degree in Visual Communication. She brings a strong customer services background to Greenway.

Debbie qualified as APA in 2017 and a fully qualified financial advisor (QFA) in 2018.

She believes that product knowledge is key to helping customers make the right choices.