What is the Value of a Promise?

 

It is estimated that 90% of defined benefit schemes in Ireland are in deficit and that the pension schemes of 200,000 individuals are in danger of collapse with the new rules regarding funding requirements.  You will most likely see more of your clients coming to you asking what to do next.

The defined benefit scheme was the holy grail of pension schemes for a long time.  You were guaranteed a certain level of pension in retirement based on your years of service and salary.  What you effectively have is a promise and now you must ask yourself what value you can put on a promise from a scheme which is in deficit.  When advising clients who are considering exiting a defined benefit scheme, you must take particular care.  The client is considering giving up what could be a very valuable benefit, if the scheme can deliver on the promise.  However, if there are doubts as to the ability of the scheme to deliver or even survive, you would need to consider whether the client would be better off taking a transfer value now and putting those funds to work for them.

When an individual ceases employment or leaves a company pension scheme, or the company pension scheme is wound up, there are a number of options available to them.  Taking the transfer value to a buy out bond is becoming increasingly popular among clients.  The trustees of the existing company pension scheme will establish a buy out bond in the individual’s name and transfer the value of their benefits to the bond.  The aim is to put the individual in control of their pension benefits.  The buy out bond has fewer restrictions with regards to investments and often more favourable costs than a PRSA.  The buy out bond can also provide greater flexibility when accessing benefits. 

Independent Trustee Company has recently launched their new Buy Out Bond.  To find out more about  ITC’s BOB download our Brochure & Terms and Conditions.

Written by Jennie Faughnan

ITC Consulting

For further information contact our team to discuss:

Michael Keyes (01) 614 8045 / michael.keyes@independent-trustee.com

Sean Mc Loughlin (01) 614 9220 / sean.mcloughlin@independent-trustee.com

Martin Glennon (01) 603 5130 / martin.glennon@independent-trustee.com

www.independent-trustee.com

Show me the Money

The need to trace pension monies is becoming more and more acute

Increased worker mobility, separation and divorce and the high profile collapse of some large company pension schemes.  This is the reality of the world we are operating in and something that we are seeing an increasing number of queries about in recent months.  The days of being in a job for life and paying into your company pension scheme for 40 years to receive a pension at the end of it all are long gone.  In these changing times, employees require a wider range of pension options that allow them to take control and put their pension to work for them.

A recent survey in the UK found that almost a quarter of employees have lost track of one or more of their workplace pensions.  This was attributed to the increasing number of jobs that an individual will have in their lifetime and the number of small pension benefits that may be built up and forgotten about.  It was also in some cases down to the fact that people could not locate paperwork to claim these benefits when the time came.  Having one place where you can hold all of your pension benefits together and take control of them is a solution that would appeal to many clients and their advisors.

The buy out bond is a natural fit for those who have already demonstrated a desire to take control of their circumstances.  A self-administered buy out bond can provide a greater level of control by allowing the client along with their advisors to direct how the funds are invested.  In a group company pension scheme, the individual members have little or no control over the investment strategy.  A self-administered buy out bond would allow the individual together with their advisors to create an investment portfolio that meets their specific needs rather than meeting the needs of a large group of members all with differing requirements. 

While a buy out bond can only accept benefits from one pension scheme, it may be possible to set up a number of individual self-administered buy out bonds in the one place and use those buy out bonds to co-invest in a product or to purchase a property, for example.  While the benefits can not be merged, the funds can all be used to create a portfolio of investments of the client’s choosing.

The flexibility offered by a buy out bond together with the level of control it gives to individuals make it an attractive option for clients and their advisors in these ever changing times.

Written by Jennie Faughnan

 

Independent Trustee Company has recently launched their new Buy Out Bond.  To find out more about  ITC’s BOB download our Brochure & Terms and Conditions.

For further information contact our team to discuss:

Michael Keyes (01) 614 8045 / michael.keyes@independent-trustee.com

Sean McLoughlin (01) 614 9220 / sean.mcloughlin@independent-trustee.com

Martin Glennon (01) 603 5130 / martin.glennon@independent-trustee.com

 

www.independent-trustee.com

 

Public Sector Pension Changes

 

New Single Service Pensions Scheme

The Public Service Pensions (Single Scheme and Other Provisions) Act 2012 was enacted in July 2012. It will facilitate the introduction of a new Single Pension Scheme for all new entrants to the public service.  This includes the civil service, education sector, health sector, local authorities, Gardai, Defence Forces, regulatory sector and non-commercial semi state bodies. It also includes Oireachtas members and the Judiciary.

Service-based accrual of pension will be discontinued. Instead, members accumulate money amounts towards their pensions – this will be a theoretical sum calculated annually as a fixed percentage of pay and up-rated each year by reference to the CPI. These amounts will accumulate over the span of a career to produce the pension on retirement.

 

Key Feature of New Schemes:

·         The minimum public service pension age has been raised. This is being increased initially to 66 to bring it into line with the social welfare state pension age and it will then rise on a phased basis to 67 and 68.

 

·         The maximum retirement age of the scheme is set at 70, although the Government has power to vary this by order.

·         For new entrants the calculation of pensions is on the basis of “career average” earnings – this is a change from the current position where the pension is based on “final salary”. The commencement of this provision requires a Ministerial Order.

·         The overall rate of pension contributions from staff is altered – for many the contributions will remain broadly as applies at present (approximately 6.5%), but will be higher for certain occupations.

·         The scheme modifies the earnings-linking of pensions – the new scheme provides for post-retirement pension increases to be linked to consumer prices not pay.

·         The scheme reduces, but does not eliminate, fast accrual terms – these generally apply to emergency services groups such as the Gardai, members of the Permanent Defences Force and Firefighters (as well as office-holders, the Judiciary and Oireachtas members). The uniformed services will retain their early retirement age which reflects operational needs.

·         For the President, Oireachtas members, the Judiciary and the Attorney General and others who earn accelerated pension benefits at present, the new scheme acknowledges their special circumstances by providing for a doubled rate of accrual together with a doubled rate of contribution (13%) for all new entrants to these offices. It is proposed that the President continues to receive a pension on retirement from the office. Anyone who is or was an Oireachtas member prior to the enactment of the Act retains those benefits and scheme membership if there is a break in their Oireachtas tenure.

Given the current moratorium on recruitment on the public sector, it will be some time before the above changes kick in. However, there is plenty to consider when advising the next generation of public sector workers in years to come.

 

Paul Gilmer

www.independent-trustee.com/consulting

I'm an Advisor, get me out of here!

 Clients need financial planning now more than ever and Independent financial advisors are still best placed to assist clients with fulfilling their financial objectives

 

Despite this we are starting to see an increase in advisors leaving the market. There are undoubtedly many reasons for this such as mergers, retirements and unfortunately business failures, however when we looked at the Central Banks Annual report published in April we were surprised at number of revocations in 2012 versus the number of new authorisations.

2012

No of Retail Intermediaries( including authorised advisors, multi-agency intermediaries, mortgage intermediaries)	3238
No of Retail Intermediaries- Authorisations	253
No of Retail Intermediaries Revocations	797

The report also highlighted that of the 797 revoked licences, 191 related to tied insurance intermediaries.  

 

At the start of this year there were  1: 1389  advisors per head of ROI population. Interestingly when you compare this to the UK market and CF30 Authorised Advisors the figure is 1:2265. Despite this figure over 1100 UK advisors left the market in the last 18 months,  RDR has been cited as the biggest influencing factor.

 

The US is seeing a similar trend in that the advice market is contracting at -2.3% per annum.

 

Unfortunately we don’t have a crystal ball but It’s reasonable to project that numbers in Ireland will continue to contract particularly if we adopt a version of the UKs regulatory framework.  It is also reasonable to predict that those  those who opt to stay in the market will have to adapt to a changing industry but the question id like to pose to the readers of our blog is .. “ Do you think that the Irish public will benefit from less advice in the market?”

Michael Keyes

Independent Trustee Company