BENEFITS PROVIDED BY THE FUND
This section of the member guide deals with the benefits provided by the Political Office-Bearers Pension Fund for its members. The next section covers some additional benefits for Fund members that are not actually provided through the Fund or specifically dealt with in the Fund Rules – these are included in this guide because the cost of these benefits is also part of the total contributions paid by the State for member’s retirement and related benefits.
The areas covered in this section are:
- The design of the Fund
- The contributions payable by you and by the State
- What benefits you will receive when your term of office ends (on retirement or resignation)
- What benefits your dependants will receive (from the Fund) if you die in office.
- Your resignation benefit is payable immediately, and is subject to tax (see the section of this guide titled “Taxation of benefits”).
- You have complete flexibility in deciding how you wish to use your after-tax resignation benefit.
- However, you must remember that if you don't set this money aside for your retirement, you will have less money available when you finally retire. The reality is that many people retire with inadequate savings because they have not left their resignation benefits for retirement.
Preserve your benefit (in another Fund)
You can transfer your resignation benefit to a Preservation Pension Fund, usually provided by a financial services company (e.g. an insurance company).
- In this case no tax is payable until you receive a benefit from the Preservation Fund. You may only take up to one-third as a cash lump sum at retirement, with the balance paid to you as a monthly pension.
- If you take a benefit from the Preservation Fund before retirement, it will be taxed as a resignation benefit. You should note that Preservation Funds generally have a minimum retirement age of 55 (not 50 as in the Political Office-Bearers Pension Fund).
- Any benefit you receive at retirement (after 55) will be taxed as part of your retirement benefits.
- An advantage of a Preservation Fund is that you may make one cash withdrawal before your retirement. (You may even take the full amount as a cash withdrawal.) Once you have made such a withdrawal, the balance of your money must be left in the Preservation Fund until you retire. As noted above, this cash withdrawal will be taxed as a resignation benefit.
- You can transfer from one Preservation Fund to another, but there are costs involved.
- The main disadvantage of this option is that your costs are very likely to be higher compared to leaving your money in the Political Office-Bearers Pension Fund. You could pay commission at entry, and the ongoing administration fees could be as high as 0.5% per annum of the market value of your savings in the Preservation Fund. The investment management fees could also be as high as 1.5% per annum of the market value of your savings in the Preservation Fund – currently the investment management fees paid by the Political Office-Bearers Pension Fund average about 0,6% per annum. You (or your advisor) will also need to monitor on an ongoing basis the performance of the investment managers with whom your money is invested in the Preservation Fund.
Points to note:
- If you choose to take any part of your resignation benefit in cash prior to your retirement, you reduce the amount you have for your retirement. This may result in you not having sufficient money in your retirement.
- If you choose to invest your money in a Preservation Fund, make sure that you get full details of the commission, ongoing administration fees and investment fees. An additional cost of say 1% per annum over 20 years will reduce your retirement benefit by as much as 20%!
Retirement Annuity Fund
Retirement Annuity Funds are somewhat similar to Preservation Funds and are also provided by financial services companies such as insurers.
- You will not pay any tax at the time you transfer the money, and you will be preserving your benefit for your retirement.
- Importantly, you can only receive a benefit from a Retirement Annuity Fund on your retirement on or after age 55 (or on your earlier death or ill-health retirement) – you cannot access your savings in the Retirement Annuity Fund before this.
- You may only take up to one-third as a cash lump sum at retirement, with the balance paid to you as a monthly pension.
- You should also be aware that the cost structure of a retirement annuity will be higher than becoming a deferred beneficiary of the Political Office-Bearers Pension Fund.
New employer’s Retirement Fund
The tax treatment here is complex and depends on whether your new Employer’s fund is a Pension or a Provident Fund.
Tax will almost certainly be the main factor in deciding whether it is sensible to transfer your resignation benefit to the new Employer's Fund. If you are considering transferring your benefit in this way, this option makes most sense when your new Employer's fund is a Pension Fund.
The possible advantages of this option are:
- You preserve your Fund savings for your eventual retirement;
- It is likely to be a cheaper option than a Preservation Fund or Retirement Annuity Fund (e.g. no commissions are payable).
Leave your benefit in the Political Office-Bearers Pension Fund (i.e. become a Deferred Beneficiary of the Fund)
You may choose to become a Deferred Beneficiary of the Fund. In this case:
- You will leave your benefit in the Political Office-Bearers Pension Fund to earn investment returns until your retirement (from age 50 onwards). However, you cannot access your benefits before age 50 (except if you qualify for ill-health early retirement).
- When you retire (from age 50 onwards), the benefit will be treated as a retirement benefit – you will be able to take up to one-third as a cash lump sum, subject to tax.
- The main advantage of this option is that your costs are likely to be much lower. There is no commission. The investment management fees are at the level that the Fund has negotiated for all its investments, and therefore you will benefit from the economies of scale that the Fund has been able to achieve, instead of most likely paying higher fees associated with 'retail' savings options such as Preservation Funds.
- You also have the advantage that the Trustees monitor the performance of the investment managers with whom your money is invested on an ongoing basis.
It is important to note that, if you do not give the Fund clear instructions on how you want your benefit to be dealt with within 24 months of leaving office, you will automatically become a Deferred Beneficiary (unless the Fund has provided a housing loan guarantee to your mortgage lender which the Fund is required to settle). This means that, if you are under age 50 at that time, you will not be able to access your benefits before age 50 unless you qualify for ill-health early retirement.
Special Note for Deferred Beneficiaries
This guide includes a summary of the Rules of the Fund and the insurance policies that provide certain benefits for members and their dependents. In the event of a conflict between this guide and the Rules or the insurance policies, the Rules or the insurance policies (as the case may be) will take precedence.
The information in this guide does not constitute advice by either the Board of Trustees or its professional advisors. Members are encouraged to seek expert advice from a personal financial advisor before taking decisions regarding their benefits from the Fund.
The Fund will try to ensure that the material in this guide is up to date and accurate, but this cannot be guaranteed at all times.