If you’re reading this article, you must have just received an offer to transfer from your defined benefit pension scheme.
Even if you haven’t yet received an enhanced transfer value offer but have an active defined benefit pension plan, reading this article would provide you with the basic foundational information necessary to understand what this is and how it can benefit you.
Let us begin with the basics. In an enhanced transfer value Ireland offer is made by the financial institution that is managing your pension fund. This offer is an incentive for you to transfer from the defined benefit pension plan to a different pension plan, which is usually similar to your existing plan.
The process of calculating an enhanced transfer value offer is complicated as it considers many variables, and therefore the ideal thing to do is to consult a financial advisor.
That said, the transfer value is usually calculated by taking into account the total pension pot that you’d receive post-retirement.
The next factor considered is how close to retiring you are. The closer to retirement you will be, the greater the transfer value would be, provided that the fund performs at the same level while inflation doesn’t increase drastically.
The total value of the offered money is usually the sum of the total amount you would have received post-retirement and the company enhancement value, which is arrived at after doing various calculations.
Anyone who is covered under the defined benefit pension plan is eligible for the enhanced transfer value offer, provided they are still an active member of the workforce and have been contributing towards their fund diligently.
- Why should you opt for it?
The dilemma of whether or not to opt for this offer is something that many people struggle with, as it is not easy to switch from a plan right when you are about to realize the benefits.
It should not be seen as a situation where you are giving up on something to gain something else but rather understand it as being paid to get a pension plan. That said, only a financial advisor can tell you if you are getting the right price for the new pension plan.
If you believe you can use the extra liquid cash in the short run or if you’d rather gain a lump sum payment now. At the same time, if you wait for the new pension to kick in upon retirement, you should consider this enhanced transfer value offer seriously and begin talking to your financial advisor about it.
- Is there a tax benefit to opting for a lump sum payment
If you choose to opt for the enhanced transfer value being offered, then 25% of the total amount could be potentially taxed free, thereby ensuring that you’d receive at least a quarter of that money which is tax-free.
- How comfortable are you taking control of your investment options?
One of the main concerns many individuals face is having to take control of their investment options, given that now they are in charge of the money and not some financial institution.
There are two ways to look at this. The first is that you consider your ability to understand and invest, and if you believe that you’d be able to do so without taking too much stress, then that’s the ideal way to go.
However, consulting a wealth manager or an investment institution would be advisable if you are not too sure or too comfortable making such decisions on your own. Given that these people are professionals dealing with such tasks on a usual basis, it would give you some comfort in knowing that your money is in safe hands.
Another alternative is to learn how to invest, and that could even become a hobby of yours once you enter the retirement phase of your life.
After reading this article, you understand how an enhanced transfer value can benefit you in the short run while providing you with a portion of the money that is not subject to taxation. In addition, you also understand the ideal time at which you stand to gain the most from such a transfer without losing out on the long-run benefits of a plan as it gets transferred to a different plan rather than being completely nullified.
