The Orca Financial Guide to understanding
Buy Out Bonds
What’s is a Buy Out Bond?
A Buy Out Bond is a pension bond into which you can transfer your fund,if you leave your company pension scheme.
How do I set one up?
If you are leaving your company pension scheme, you’ll have a number of options for the fund that you have accumulated in it
- You can transfer it to a Buy Out Bond.
- Leave it in your old company pension scheme
- Transfer it to a PRSA
- Transfer it to your new employer’s pension scheme
(with your new employer’s agreement)
If you choose the Buy Out Bond option, the trustees of your company pension actually set up the Buy Out Bond for you. However, the bond is in your name and you can generally choose any Buy Out Bond you wish. The trustees only involvement is signing the application form, and once the bond is set up, the trustees have no further involvement or input on your pension.
What are the advantages of a Buy Out Bond?
- The policy is issued in your name and is no longer under the control of your old employer.
- You can choose which insurance company to deal with, and choose the fund you want.
What are my retirement options with a Buy Out Bond?
You will have a number of options when it comes to taking your retirement benefits from your Buy Out Bond.
With the accumulated fund, you can either:
- Take a lump sum of up to 25% of your fund
- Or take a lump sum amounting to 1.5 times your final salary at the company (provided you have worked for the company for over 20 years)
What rate of tax is applied to this lump sum amount?
- Up to €200,000 is tax free
- Next €300,000 is taxed at the standard rate (currently 20%)
- €500,001 and over is taxed at the marginal rate (currently 41%) plus PRSI and USC
What about the balance in the bond after taking a lump sum?
If you take a lump sum of 25% of your fund, you can either buy an annuity with the remaining balance or invest it in an Approved Retirement Fund (ARF).
If you take a lump sum of up to 1.5 times your salary, you must purchase an annuity with the remaining balance.