Independent Trustee Company Blog

Showing posts with label Tommy Nielsen. Show all posts
Showing posts with label Tommy Nielsen. Show all posts

Tuesday, September 24, 2013

A Question of Income



“The question isn’t at what age I want to retire, it’s at what income”.
-          George Foreman

While we await the fall-out from the increase in the State Pension Age to 66, due to take effect on 1st January 2014, and the unknown changes to the pension regime, anticipated in Budget 2014, George Foreman’s declaration gains particular relevance for Irish pension savers.

What measures affecting pensions are we likely to see in October’s Budget?
Last year the Minister announced that the Government would introduce measures to ensure that tax relief on pension contributions would only serve to support pensions that deliver an annual income of up to €60,000.  This aim is likely to be achieved by reducing the maximum allowable pension fund (the standard fund threshold - “SFT”). The threshold will potentially be reduced to anywhere between €1.2m and €2m. 

If the current system of valuation is maintained, i.e. by using a multiple of 20, then a reduced SFT of €1.2m could be introduced.  That would affect all those with defined contribution arrangements as it is not realistic to expect €1.2m to produce an annual income level of €60,000.  Some in the industry, therefore, are lobbying for a more realistic multiple of 30 times to give an SFT of €1.8m.  Of course, an increase in the multiple, while favouring defined contribution pension schemes, could see a higher number of defined benefit pension entitlements affected by the threshold.

A further consequence of the reduction in the threshold, and this is likely to be more important to the majority of pension savers, will be a reduction in the retirement lump sum.  Currently up to €200,000 of a pensioner’s retirement lump sum may be taken tax-free and further lump sum entitlements up to €375,000 may be claimed at 20% tax.  A reduction in the SFT could also lead to a corresponding reduction in the amount of the lump sum available at the 20% tax rate.   If this also leads to a corresponding reduction in the €200,000 tax-free lump sum, a large number of pension savers could be affected.

Realising that we possibly can’t change much about the upcoming Budget, we could adopt a defeatist attitude. Foreman took a different approach to his retirement and famously invented a grill.
Similarly, pension savers facing the unknown may also take precautions.  So, if you are close to or have passed your retirement age, you may consider whether to draw down your pension now.  It can continue to grow tax free in an Approved Retirement Fund, but you could avoid the possible reduction in the lump sum benefits.  If you decide that you are too young to retire you can later change your mind and fund a new scheme.

If you are close to the standard fund threshold or in the fortunate position of having made investments which will bring you above it before your retirement, you may similarly consider the retirement option or avail of the temporary measure to draw down 30% of your AVCs – in order to avoid the punitive tax.

If on the other hand you have no intention of hanging up the gloves or are far off any of the thresholds, the best advice is to avail of the tax benefits of the current regime to the greatest possible extent.  Tax relief on pension contributions continues to be beat all other reliefs in the tax code.  The best precautionary measure against the unknown is to make your pension contributions now!

Tuesday, March 12, 2013

Meet the trustees


If you are the owner of / the advisor to an ITC SSAS, do you remember to hold your annual trustee meeting?
A trustee meeting provides an excellent opportunity for the trustees to meet with the scheme financial advisor and the administrator to do a review of the scheme. Issues that are typically discussed are investment strategy and performance, scheme governance, trustee training etc. - but it’s an open forum!

The owner of an ITC SSAS is also a trustee of the SSAS, ITC being the other trustee. This is one of the key features of the ITC SSAS. The Pensions Board’s Trustee Manual, which sets down rules of conduct for trustees of occupational pension schemes, prescribes that trustees should meet at least once every year. It is most appropriately done just after the issue of the annual scheme accounts.
In ITC, we issue an invitation to a trustee meeting and the meeting agenda with every set of annual accounts. The accounts and the invitation are forwarded to the member trustee and, if we have been requested to do so, to the financial advisor. It is then up to the trustees and the financial advisor to agree the timing of the trustee meeting – but it must be held.
The meeting can be done over the phone or by meeting in the ITC offices. At the end of the meeting, the trustees observe their duty to sign the annual accounts. Minutes of the Meeting are agreed.
On occasion, issues of a legal or technical character arise. The trustee meeting is the perfect opportunity for agreeing how to solve them.
Make sure that you hold a trustee meeting at least once a year. It’s a great opportunity –  it’s your duty!
 
ITC Consulting