Five Common Questions regarding Personal Retirement Bonds ( Buy Out Bonds)
Personal Retirement Bonds(PRBs) also known as Buy Out Bonds (BOBs) are taken out by trustees of company pension schemes for former members. They are personal contracts taken out in the employee’s own name. They are usually taken out when an employee leaves service or when an employer decides to wind up their company pension scheme.
Five Common Questions
Question 1. If an individual has 20 years service in respect of his/her benefit in a Buy Out Bond, can he/she avail of 1.5 times final salary as a retirement lump sum at retirement?
Answer: No. The member can certainly avail of a retirement lump sum based on salary and service ( assuming rights were not waived) but the 1.5 times final salary would typically be reduced by the actual service over their potential service . An annuity must be purchased with the balance of the fund, unless it qualifies as a trivial benefit.
Question 2. Is it possible to change the Normal Retirement Age (NRA) on a Buy Out Bond?
Answer: No. The NRA on the Buy Out Bond must reflect the NRA of the purchasing scheme, and the trustees must sign the application confirming all informnation is correct.
Question 3. Is the death benefit from a Buy Out Bond subject to the 4 times salary cap for the lump sum?
Answer: No, as long as no more pension benefits are accruing for the client in respect of that same employment, the full value of the PRB is paid gross to the individual’s estate. Capital Acquisitions Tax may apply, depending on the beneficiary.
Question 4. Can an individual split their transfer value into more than one Buy Out Bond?
Answer: Yes, but the trustees must elect when setting up the Buy Out Bonds, which one can pay out the lump sum assuming the lump sum is taken based on salary and service.
Question 5. If the Normal Retirement Age of the PRB must match that of the purchasing scheme, does this mean the individual cannot take retirement benefits until the Normal Retirement Age?
Answer: No, once the member has left service, early retirement benefits can usually be taken from a Buy Out Bond from age 50, as long as the trustees did not impose any restrictions on this when the Buy Out Bond was established. If the member was a 20% Director, shares must be disposed of, prior to accessing early retirement benefits from the Buy Out Bond.