Part 4: Transfers - to and from a PRSA

One of the great benefits of the PRSA as a pension vehicle is its ability to interact with other pension products in terms of transfers. Here are some of the things it can do:

Occupational pensions

1.   Transfer to an occupational pension scheme is possible subject to the trustee’s consent.

2.  Can receive a transfer from an occupational pension scheme provided the period for which the individual has been a member of the scheme is 15 years or less and benefits have not become payable. The 15 year restriction does not apply to AVC transfers. Certificate of Comparison and Written Statement required.

Personal Pensions

3.   Can receive a transfer from a personal pension subject to the rules of the personal pension.

4.    A personal pension cannot receive a transfer from a PRSA.

Approved Retirement Funds

5.    At the point of retirement, a PRSA holder can elect to take their lump sum and transfer to an Approved Retirement Fund. However, once having elected to ARF, the client cannot transfer back to a PRSA.

Vested and Non-vested PRSAs

6.    A non-vested PRSA can move to another non-vested PRSA without any restrictions or charges being incurred.

7.    Revenue have recently confirmed that a vested PRSA can move to another vested PRSA.

Buyout Bonds

8.    Transfers from and to a buyout bond are not permitted.

International Pensions

9.    PRSAs have specific provisions facilitating transfers to or from pension schemes outside the State.

We will expand on some of the points above in later blogs in the series but what is clear from the above is that the PRSA is the ideal pension vehicle not only for its transferability but also as a vehicle for consolidation of a client’s domestic and international pension arrangements.

Paul Gilmer

Part 3: PRSA versus Personal Pension

The PRSA was conceived as a replacement for Personal Pensions. It was originally intended by the Pensions Board that following the launch of the PRSA in 2002, that Personal Pensions (RACs)  would be phased out. However it has not quite worked out like that, with the personal pension continuing to co-exist alongside the PRSA.

Much of the reason for the continued existence of the RACs  is down perhaps to the approach of the larger life companies who tend to not be fans of the more onerous disclosure requirements attaching to PRSAs.

That is a pity because the PRSA offers significant advantages over personal pensions. Let us look at some of these key advantages:

• Transfers - The PRSA can receive transfers from occupational pensions and can also transfer to an occupational pension. That is a huge plus compared to personal pensions which are quite restricted from a transfer perspective.
• Post Retirement - The PRSA can be used to both accumulate a pension fund and later to pay it out. There is no post retirement mode for RACs.
• Transfer Costs - By law there can be no transfer costs associated with a transfer of pension assets into or from a PRSA. However there may be transfer charges on transfers from a personal pension
• Preserved Benefits - Both PRSAs (prior to vesting) and RACs offer a preserved benefit which can go without deduction of tax to the estate of a pension holder on their demise.
• Beneficial Owner - The Pensions Act Sec 98(1) makes it clear that “a contributor to a PRSA shall be the beneficial owner of the PRSA assets of that PRSA”.  No such provision exists for personal pensions.

In conclusion when we look at the above it might be difficult to justify choosing a personal pension over a PRSA.

Sean McLoughlin

Part 2: PRSA Reporting

One of the many advantages of the PRSA, from a client’s point of view, is the extensive reporting obligations imposed on the PRSA provider by the PRSA Regulations. From the advisor’s point of view this is the boring bit! You don't need to worry about them, as the PRSA provider we will look after all that. However, it might be useful for you to know.

1. A Preliminary Disclosure Certificate (PDC) must be provided to the client before they enter into a contract. The PDC specifies the benefits and the level of them which the client could reasonably expect to receive from the PRSA contract. The PDC is required to disclose all potential and actual commissions payable and details of any other charges. Note in a Non Standard PRSA this is usually a generic document.
2. Statement of Reasonable Projection (SORP) must be furnished to the contributor within seven days of the date of signing up to the PRSA. The PRSA provider is required to ensure the SORP contains a cancellation notice and information regarding charges. Following on from this, an SORP should be provided to the client on an annual basis. 
3. The PRSA provider is required to give to the client a Statement of Account at intervals not greater than six month’s duration.  This statement of account must:
• Show the total contributions paid since inception and, where a statement of account has previously been issued, the total contributions paid since the last statement.
• Where appropriate, distinguish between employer and employee contributions.
• Contain the PRSA value at the date of preparation of the statement. For this purpose the value is taken as the amount that would be available for transfer on the date of preparation of the statement.
4. The PRSA provider must provide an Investment Report to the client, at intervals not greater than six months, showing the investment performances of all funds in which the PRSA has invested in.

There is an old saying that says a camel is a horse designed by a committee. Well if that is the case a PRSA is definitely a pension designed by a committee of actuaries! No matter, it achieves a great result and we will deal with the onerous parts, so you can focus on the benefits the PRSA brings. 

Paul Gilmer

Pension Providers in the Firing Line

So here we are again – another pension provider under scrutiny, talks of shortfalls on funds, inspectors appointed, followed by negative reports in the media, the pension industry is caught again in the crosshairs.

Of course those of us who are a while in the pension industry will have seen negativity heaped on our industry before.  We had Equitable Life leaving hundreds of thousands of pensionholders short as they were unable to pay what they had promised. And we had Scottish Provident again leaving pension holders short as they slowly wound down their business in Ireland.

So what can we do? How can we demonstrate to people that their funds are safe and that not all pensions are subject to the same risks?

When Independent Trustee Company was founded 18 years ago we looked at existing pensions and we identified two key risks that could potentially cause harm to a pension holder and we took steps to eliminate them. These two risks are:

·         Balance Sheet Risk, and

·         Pooling Risk

Balance Sheet Risk

Balance Sheet risk occurs when a pension provider keeps the pensionholders assets on its own balance sheet. Effectively the clients pension assets and the pension providers own assets are held together on the balance sheet of the provider and if that provider gets into difficulty as we have seen with Equitable Life and Scottish Provident  then the clients assets can be called upon. 

In these circumstances the client unwittingly takes on a risk that he is not being rewarded for, though perhaps more importantly he faces the potential loss of some or his entire pension.

In the UK they have woken up to this problem and where an advisor fails to adequately explain the difference between assets being held on the provider’s balance sheet versus being held at arms length, they risk a future claim.

The solution is simple but effective. At Independent Trustee Company we hold no client assets on our balance sheet, all the pension assets are held under trust. This includes not just the ITC SSAS which is by its nature a trust but also the ITC ARF and our newly acquired ITC PRSA. No mixing of assets can occur and as a consequence we truly believe that we have the safest pensions on the Irish Market.

Pooling Risk

The second risk is pooling risk. This occurs when client assets are mixed together for administrative reasons. A typical example is a client asset account where all funds received from various pension holders are lodged and perhaps also where all funds paid out by the pension provider are paid out from.

The potential risk here is that clients’ funds can get confused, one client gets credited with the assets of another, or perhaps on the payments side a client is charged with a payment that relates to another client. The result is at best administrative confusion, at worst complete organisational and system chaos.

So how do you minimise the possibility of that happening?  Again the solution is simple, at Independent Trustee Company, each and every pension holder has a separate bank account even before  funds are contributed/transferred. And if they engage in an investment that is specific to them they have further separate accounts there also.

Of course if they combine with a number of other pensionholders to invest in say a syndicated property that investment will be a combined account. However only the portion that relates to the investment is combined, the pensionholders other assets are kept separate.   

We have found over the years that these two guiding principles allow our clients, (and indeed ourselves, those that regulate us, and those that insure us) to sleep well at night.  Perhaps these principles are what our industry needs going forward.  

1. Why the Vested PRSA is replacing the ARF as the most flexible retirement option

On the face of it, ARFs were finally accepted into the larger pensions family in the Finance Act 2011 when they were made available to all retiring members of Defined Contribution arrangements. However their increased recognition in legislative terms, while welcome, brings it line with a ‘Vested PRSA’ which has existed for some time..

Some of the attractions of the PRSA as a post retirement vehicle are:

1. Deemed drawdown-There is currently no compulsory drawdown requirement on a PRSA in retirement. An individual has the option at retirement to leave their assets invested in their PRSA until age 75 thereby deferring the payment of such taxes.
2. Pensions Levy – The pensions levy, while it applies to a PRSA pre-retirement, does not apply to a vested PRSA post retirement.
3. UK property-The UK tax authorities have sometimes had a difficulty recognising the Approved Retirement Fund (ARF) as a pension vehicle and as a consequence any UK rental income arising in the ARF is potentially subject to UK tax. They have had no difficulty recognizing the PRSA.as a pension vehicle.
4. Early Retirement -  If you are a company owner/director looking to retire early, and you have an occupational pension, the Revenue are likely to insist that you sell your shares in the employer company. However when you are retiring from a PRSA, while the Revenue will insist that it is a genuine retirement, they do not require a sale of shares.
5. Estate planning- As stated above you can transfer your benefits at retirement to a number of PRSAs, and you can access these over a number of years. The value of a PRSA where no lump sum has been drawn down, can pass directly to your estate on your death, effectively acting as a form of life assurance for those pension holders up to the age of 75 who do not need to access all their funds. This offers advantages over an ARF where once the 25% tax free lump sum has been drawn, further withdrawals are subject to income tax.(Note there may be pensions levy implications)  
6. Flexibilty- Assets in a Vested PRSA can at a later stage be transferred into an ARF. Under current rules ARF assets cannot be transferred into a PRSA. 
7. Pension Adjustment Orders: A little known feature of pension orders is that they can sometimes be varied at a later stage, creating a lot of heartache for people who thought they had a final settlement.   It is possible to  block the variation of a pension settlement on separation and divorce when the pension vehicle is a PRSA. However, this facility is not available for an Approved Retirement Fund. 
8. Defer the AMRF requirement: The recent Finance Act increased the AMRF requirement to €120,000. This requirement does not kick in for a PRSA until it becomes ‘in payment’ i.e. a further drawdown is taken from from the PRSA after the lump sum has been taken. The AMRF requirement is immediate for ARF holders who do not have a guaranteed pension income of €18,000 at the time of transfer to the ARF. 

PRSAs are playing an increasing role as a retirement planning vehicle. Whilst the ARF is still the retirement vehicle of choice for many clients, the flexibility of the PRSA offers Pension Advisors significant planning opportunities for their client at retirement. 

Paul Gilmer

Company Notice regarding the notice in the Irish Times

I’m writing to you regarding  a notice on page 27 of this morning’s Irish Times, the notice refers to the appointment of a receiver to Independent Trustee Company.

This notice is incorrect and our solicitors are communicating with the parties involved on this.

The notice itself relates to a particular investment property held on behalf of pension clients within a sub-fund of our Delta Fund. Independent Trustee Company act as trustees of the fund but we have no beneficial interest in the asset nor responsibility for its liabilities.

More generally it is useful to note that all of the properties held by Independent Trustee Company are contained within individual trust structures similar to this, thereby ring-fencing any liabilities attaching to them. In particular this means that neither the client nor Independent Trustee Company have any liability beyond this. In addition the liabilities of each client is ring-fenced from all other clients and indeed from other assets of the particular client.  

Independent Trustee Company is an Irish owned company, established in 1993. We employ over 50 staff & are the largest provider of self-administered pension structures in Ireland, we administer more than €750 million in client funds including 800 properties through 3000 pension structures. All our structures are held within individual trusts, which provide clients with superior pension security.

For those Advisors who contacted the office today, I would like to thank you for notifying us. If your clients are in anyway concerned following this notice please feel free to direct them to our website or alternatively they can call the office on (01) 6611 022.

Yours sincerely,



Michael Keyes
Sales and Marketing Director

PRSA Planning Points

Independent Trustee Company will be launching their new PRSA product over the coming weeks, to coincide with our launch and marketing campaign we will be outlining some of the key PRSA planning points with a particular focus on client benefits post retirement.

If you have any thoughts or questions relating to PRSA planning we would be delighted to hear from you and will look to deal with these queries through the blog.

Planning points after the Personal Fund Threshold applications. Part 3

The third common query that I want to address in this series of posts is around a guaranteed annuity rate when considering the PFT.

Where a person has a pension with a guaranteed annuity rate in excess of 5%, do you use:

a.    20 times multiplier of the guaranteed sum, or

b.    multiplier based on actual annuity rates as at 7^th December 2010?

For Defined Benefit (DB) schemes the valuation basis provided for, by the legislation, is 20 x Pension. For a Defined Contribution (DC) scheme where the insurance contract contains an entitlement on retirement at Normal Retirement Age (NRA) to a minimum guaranteed annuity rate, a number of questions arise:

1.    Does the existence of the guaranteed annuity rate convert this into a Defined Benefit scheme? In my view the answer is no.

2.    If not, should the contract still be valued using the 20 x valuation system? Again my view is no. Typically market annuity rates will give a better value.

3.    Are market rates the only way to value? No. Consideration should be given to other value options e.g. Discounted cash flow.

If you have any queries on any of the queries raised in this series of blog posts, please contact us on (01) 661 1022.

Aidan McLoughlin

Planning points after the Personal Fund Threshold applications. Part 2

Continuing on with the common queries around the Personal Fund Threshold (PFT), another key issue raised was expressed well in this example:

If a hospital consultant has worked for 20 years as at 7^th December 2010 and expects to work for a further 20 years, is the capital value of the pension

a.    pensionable salary x (20/80) x 20 or

b.    pensionable salary x (40/80) x 20?

This question goes to the heart of the PFT valuation issue. The rules for valuing Defined Benefit (DB) scheme benefits, as outlined by the Revenue Commissioners, are clear that the value is outlined under Option A above.

Some advisors have taken a different view of the legislation. In particular, the assumptions used under Schedule 23B suggest the value should be achieved on the basis of no reduction due to early retirement. This is the basis of the valuation under Option B above.

An alternative view is to value the existing benefit under Option A and to then provide a second valuation for future benefits. As this falls outside the formal valuation methodology suggested by Revenue, it provides more scope for an advisor to look at alternative valuations.

Aidan McLoughlin

Planning points after the Personal Fund Threshold applications. Part 1

Over the last few weeks we have been giving a pensions update to advisors at the joint LIA/ITI events. Some of the common queries that were consistently raised at the events revolved around the Personal Fund Threshold (PFT). Some of the queries raised are good examples for the basis of calculating a PFT.  I will be discussing some of these over the next few blog posts.

The first query put to me was; if you value a PFT on a gross basis and the asset is subsequently sold with the debt repaid, can you make further contributions up to the PFT level?

The allowance available under the PFT legislation is an extremely valuable asset.  Say you are granted a PFT for €3.3million, this equates to a €410k reduction in your tax bill.  Whilst the allowance is granted based on the value of assets held as at 7^th December 2010, there is no requirement that those assets should continue to be held.  Thus, by the time you retire, your Fund could comprise of entirely different assets.

For example, a property worth €3.3million on 7^th December 2010 could have €2million in debt attaching to it.  Whilst a PFT of €3.3million could be applied for, the actual Fund is, in practice, worth €1.3million.  If that asset is disposed of today and the debt is paid off, it becomes clear that the Fund is €2million below the PFT.  This can then be built up with further contributions. 

It should be noted that Revenue have recently issued a letter stating that in their view, PFTs should be valued on a net basis.  We are aware of a number of applications that proceeded on a gross basis and await, with interest, the outcome of those.

Aidan McLoughlin



As an advisor, how will the pensions levy affect your business?

Independent Financial Advisors provide advice on 70% of all contributions into private sector pensions in Ireland and, as professionals, are at the forefront of advising the Irish public to provide for income on retirement.

A poll conducted by Independent Trustee Company has revelaed that the vast majority of financial advisors believe that the pensions levy will negatively affect the amount contributed to private sector pension funds in one way or another over the next few years.

The question put to top Financial Advisors was “Following the new pension levy, how will this affect your clients’ future decisions to contribute to their pension fund?”

The results of the poll are highlighted below.

Pensions coverage in Ireland is still at an alarmingly low level with voluntary private pension coverage at 53% for people aged between 25-34 years. Adequacy of pensions savings is a major issue for people aged between 45-65 years. This is a long term issue that needs to be tackled and not exacerbated by a short-term need for cash. The government needs to support and incentivise people who are prepared to save for their later years. Tax relief on contributions is crucial to this and must be maintained and these benefits must also be highlighted to the Irish public.

Pensions, despite the levy, are still the most efficient way of saving for retirement.

Michael Keyes

Jobs Initiative announced - introduction of the Pension Levy

Last Tuesday (May 10^th) the government introduced the anticipated pensions levy as part of the Jobs Initiative. The government is imposing an annual levy of 0.6% on the value of the assets in private sector pension schemes. Approved Retirement Funds (ARFs) are excluded from this levy but are taxed in a different manner through the imputed distribution. Public Sector pensions are exempt.

The levy, which is to be backdated to January of this year, will be paid each year for four years and is expected to raise €470m a year, a total of €1.9 billion by the end of the 4 year period.

The levy has not been put into legislation as of yet but is expected in the coming days. We will keep you informed on any developments.

Deadline for Personal Fund Threshold applications fast approaching

The deadline for applications for Personal Fund Thresholds (PFT) is now only one month away. June 7^th is the latest date that Revenue will accept applications for a PFT and to date less than 150 enquiries have been made to Revenue. It is estimated that over 6,000 individuals could be affected.

With the deadline fast approaching the key is planning; firstly to obtain the correct Personal Fund Threshold for your clients and secondly, to plan in order to minimise the impact of the threshold.  The traditional advice around pension planning may have to be adjusted based on your clients’ circumstances.

If you have a query regarding PFT you can contact our PFT Helpdesk on (01) 603 5199 or email pft@independent-trustee.com for an initial free assessment on your clients’ potential exposure.

Chief Justice raises pension tax concerns with Kenny

In a meeting with Enda Kenny recently, the Chief Justice raised concerns about how the reduction in the standard fund threshold to €2.3m would affect judges’ pensions.

An article in the Irish Times yesterday, 27th April, alludes to the fact that there is a difference between the valuation methods used for public and private sector pensions.  What it doesn’t highlight, however, is the effect of these differing valuation methods.

For an individual in the public sector, the threshold equates to an annual income in retirement of €115,000.  For someone in the private sector with a defined contribution pension scheme, the same fund threshold equates to an annual income in retirement of €60,000.  It would be interesting to know how they justify this difference in treatment.

I also wonder whether the Chief Justice asked Enda Kenny about the plans in the Fine Gael manifesto to further reduce the standard fund threshold to €1.5m.

Jennie Faughnan

Beware...Pension deadline for high earners

Dominic Coyle of the Irish Times brought to our attention the registration deadline (June 7th)for Personal Fund Thresholds in his article Pension deadline for high earners.

This relates to the reduction in the pension fund cap since Budget 2011 from €5.4m to €2.3m (Standard Fund Threshold). Individuals with fund values or accrued pension entitlements valued in excess of €2.3m as at 7th December 2010 can seek a Personal Fund Threshold (PFT) from Revenue for the higher value.

Such individuals are required to register the details of their pension with Revenue by June 7th, otherwise Revenue will levy a tax on anything above the Standard Fund Threshold on retirement.

It is important that you contact our PFT Helpdesk on (01) 6035199 or email pft@independent-trustee.com as soon as possible in order to get an initial free assessment on your exposure.

The Irish Taxation Institute Annual Conference 2011

The Irish Taxation Institute Annual Conference 2011 was held in Galway last week. Independent Trustee Company were proud to support the conference for the tenth consecutive year and were well attended at the event.

A number of excellent presentations were made covering all areas of taxation from VAT to income tax to capital taxes. Not surprisingly, Pensions was, in itself, a detailed presentation and was also a hot topic of discussion among many delegates, given the recent changes in Finance Act 2011 and the implications it will have for advisors and their clients.

The main points from the pensions presentation were:

• Personal Fund Threshold (PFT) applications by 7th June 2011 – Irish Times article on Saturday confirmed that 144 applications have been made to date with Revenue
• Impact of longevity on pension planning – ’60 is the new 40’… Ireland’s population is aging rapidly
• Dividing pensions in family law cases – the impact of Pension Adjustment Orders on spouses ability to fund for pension
• Changes made to Approved Retirement Funds (ARFs) since Budget 2011 – availability of ARF to all members of DC arrangements and the new AMRF rules
• Potential restrictions on tax relief going forward – following on from the previous governments four year plan, there is still no confirmation from the new government if the tax relief on personal contributions will be restricted to standard rate by 2014.
  
  
  Many of these topics were covered in our recent On The Pulse Knowledge Forum in March, which is available on our website and will be further discussed at our next Knowledge Forum scheduled for May.
  
  
  There are still a number of points from the Finance Act 2011 that need clarification particularly around the new AMRF rules and the PFT. We have contacted Revenue on a number of these queries and hope to bring you further clarity on these matters and others at the next Knowledge Forum scheduled for May.
  
  
  If you have a query regarding your Personal Fund Threshold, Pension Adjustment Orders or if you would like to attend our next Knowledge Forum please call Simon Keegan on (01) 6611022 or email justask@independent-trustee.com.