Options after pension winds up

Dominic Coyle answers a selection of your questions

I have a query regarding pension entitlements. I contributed (for 17 years) to a defined benefit pension scheme until three years ago, when I was made redundant from my position with a multinational company, at which time my benefits were frozen. I have now been informed that the company is to terminate the scheme, leaving the trustees with no option but to wind it up.

Can you advise me of the implications of this and what my options are? Mr T.K., e-mail

The most important thing for pension scheme trustees to remember is to keep open the lines of communication with members of the scheme.

There are quite stringent rules laid down on information that members are entitled to in these circumstances.

First off, all members need to be notified individually within 12 weeks of the decision to wind up the scheme or the date on which the trustees became aware of such a decision.

From your question, it would appear that the trustees of your scheme have got this far.

The downside from your point of view is that your options are limited. Most of the decisions on what will happen with your preserved pension benefit will be taken by the trustees, not by you.

More importantly, there is a pecking order of priority in relation to pension fund members when a scheme is wound up and people in your position rank towards the bottom of that list.

Before they get to that point, the trustees have to ascertain what assets there are in the scheme. Having done that, they have to distribute the assets in accordance with the scheme rules on winding up the scheme.

However, there are some overarching rules laid down in the Pensions Act. These essentially determine the order in which people receive benefits when a scheme winds up.

Top of the list come additional voluntary contributions (AVCs), made by members of the scheme. These are ring-fenced and must be honoured ahead of any other class of member.

Next come pensioners who are already drawing down payments from the scheme, including dependent pension payments.

After that, priority is given to the benefit rights of funds that have been transferred into the fund - for instance, when someone joins from another scheme and transfers their accumulated pension benefits.

Only after all these classes of member benefits are met do you get to the benefits accruing to members of the pension scheme who are still working for the scheme sponsor and those, like yourself, who have left the company for some reason and whose pension benefits have been preserved.

Assuming that the scheme is fully funded, everyone will get their full benefits. With recent defined benefit scheme shortfalls, however, that may not be the case.

You will be notified of your benefit rights and options under the rules of the scheme once the trustees have ascertained the scale of the assets.

In terms of options, benefits accruing to people already on a pension will be used to purchase an annuity - an insurance policy that pays a set sum on a regular basis for the remainder of your life.

In order to secure the benefits of non-pensioners, trustees used to have to make a deferred annuity purchase. However, more discretion has been introduced in the most recent Pensions Act. It allows trustees to transfer the benefits to a scheme operated by your new employer, if any. It will also permit the transfer of funds into a PRSA or a buy-out bond.

However (and this is the important thing to note) it is the trustees and only the trustees who get to decide which path to choose. Having said that, if you have a clear preference, you would be advised to communicate that to them.

After all, they are hardly looking to work against your interests.

Euro saving

My husband and I live in Germany and have managed to save just over €25,000. In addition, we can put away about €800 a month. Our plan is to return home to Ireland in four to five years and hopefully buy a house. We have looked at saving schemes in Germany, but interest rates are very low. Are there better opportunities for us to invest our money in Ireland? Mrs. G.T., Germany

In the not-so-distant past, it is certainly possible that there would have been significant differences between the rate of return available in Ireland and in Germany. Under the euro zone however, the common interest rate means this is little in evidence these days, although there can be some short-term differences.

Your options depend on risk and most can be accessed regardless of your residence. For the risk averse, the best current options are Northern Rock and RaboDirect.ie, which are offering 3.25 per cent and three per cent respectively, which at least beats inflation.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice.