Revenue discover 115,000 pensioners

Following on from our previous post, Aidan McLoughlin was interviewed on Morning Ireland about the shock revelation from the Revenue that 115,000 pensioners have been underpaying tax on their Social Welfare pensions. The reason apparently is because the Revenue didn't know they were in receipt of Social Welfare pensions and therefore hadn't factored this extra income into their tax allowances.

Listen to the podcast here.

Could the pensions levy have been prevented?

The announcement by Revenue that 115,000 pensioners have been underpaying their tax will come as a shock to many. The reason apparently is because the Revenue didn’t know they were in receipt of Social Welfare pensions and therefore hadn’t factored this extra income into their tax allowances.

 

The Revenue press release on this matter indicates that the tax payable could exceed €4,000 for a single person or €8,000 for a married person. Taking the lower figure as an average it would seem that the tax foregone could amount to €460m – about the amount collected by the pension levy. Its begs the question whether or not the pensions levy could have been prevented?

 

Amazingly there is no suggestion that previous underpayments will be collected. The Revenue's focus will be on getting it right from now on. Other pensioners who paid their tax in full and are now paying a pension levy on top can only look with envy at their peers who have neither exposure.

Merry Christmas from ITC

Merry Christmas from ITC

'Christmas Jumper Day' is becoming somewhat of an annual event here in ITC. The event took place last Friday 16th December where staff were invited to wear their best Christmas jumpers in an effort to raise money for our chosen charity, Focus Ireland. The day saw €940 raised for the well deserving charity.

The staff at ITC would like to take this opportunity to wish all our readers a Merry Christmas and a Happy New Year. We will be back in 2012 with more from Ireland’s first truly independent pension’s blog!

10 years ago we had Steve Jobs, Bob Hope and Johnny Cash. Now we have no jobs, no hope and no cash!

Budget 2012 - Expectation Management 

by Aidan McLoughlin, ITC

The key theme of this year’s budget has been “EXPECTATION MANAGEMENT”.

What was normally a 3 hour event has been converted into a 3 day saga. Key features of this exercise have been:

·         to prepare the population for bad news (through an unprecedented level of kite flying as well as assistance from the German Parliament), and

·        
to ensure the previous government could clearly be shown to be responsible for the current crisis and that this government will “retrieve our economic sovereignty”.

Initial impressions are that the government has achieved some success in regard to damage limitation – “not as bad as we thought” seems to be the most common response.

Our economic sovereignty is more uncertain: the fact that we need to hear from the Germans probably emphasises where we are on this point.

Whilst the Budget is generally bleak and everyone will be a little worse off, there are some small points of hope – the increase in mortgage interest relief for first time buyers, the reduction on stamp duty on commercial property, the adjustment of the Universal Social Charge.

Equally there will be relief as regards changes that didn’t happen: tax relief for pension contributions and loss relief for capital taxes are two areas where audible sighs of relief were heard.

People will be glad to be still surviving, but the end line is still a long way off. Without offending the present government I would suggest the clear theme is perhaps “a lot done, more to do”.

For our view on other aspects of the budget, please click here. 

ITC continues to lobby the government on behalf of Advisors

Aidan McLoughlin, through his role as chairman of the Irish Brokers Association Pensions Committee, continues to be involved in lobbying the government on behalf of Advisors. Recent meetings include: 

·         TD Terence Flanagan of Fine Gael

·         TD Peter Matthews of Fine Gael

·         Senator Fidelma Healy Eames of Fine Gael

·         TD Michael McGrath of Fianna Fail

·         Senator Jimmy Harte of the Labour Party

·         Senator Michael D’Arcy of Fine Fail

·         Independent TD Shane Ross

·         The Department of Finance

·         The National Treasury Management Association (NTMA)

The Pensions Committee has developed a five point plan to make pensions more relevant in the current environment and to help protect the remaining tax reliefs. It was good to see last week that some TDs are listening and attempting to tackle the issues highlighted in the five point plan.

In addition to the above activity, ITC is represented on the several other industry groups including:

·         Association of Pensioneer Trustees of Ireland (APTI)

·         Young IBA

·         IAPF Council

·         Pensions Committee in the Law Society

·         Association of Compliance Officers

Through our blog, we will continue to keep you posted of ongoing lobbying activity.

What has the Pensions Board got to say about the Levy?

There was some interesting coverage in The Oireachtas Report which was broadcasted on RTE1 yesterday. The Pensions Board CEO, Brendan Kennedy, was questioned about the Pensions Board's role in advising the Government on the pensions levy.

The Oireachtas Report footage is here. The relevant piece starts at 12min 50. The footage will be available until 8th December 2012.

Pension Investment in Private Companies

Self-administered pensions can invest in a wide variety of investment products. Publically quoted shares and other securities, investment bonds, property and deposits are some of the more common.

However, in the last couple of years we have seen increasing interest in investment in private companies. It has traditionally been, and indeed remains, a high risk area, but, given the lack of alternative sources of finance, private companies that would otherwise find a ready market for their fundraising through the more usual routes are having to cast their nets wider. Many have come to appreciate the benefits of investment by pension funds, from both traditional pension fund investors and small self-administered schemes.

Investments structured to accept funding from self-administered pensions can be collective investment structures, but more typically an individual with a self-administered pension structure will want to make an investment into an ambitious SME. In the last three years alone, over €7.2 million has been invested in this way through ITC into a wide variety of companies, from wind energy companies and a provider of prepaid electricity meters through software development companies, an internet daily deals/social networking group of websites and electronic media companies to property development companies. Any trading company can profit from such investment.

Investments have to be on proper commercial terms. A private arrangement to fund your own business or that of a family member or friend or one that is not commercial would not be acceptable for pension investment, but a properly structured investment on market terms into a trading company would always be appropriate.

If you have any clients interested in making an investment into a private company through their pension schemes, please contact us.

Jeremy Mitchell

Pension Security

We are sometimes asked questions like …How do I know my pension fund is safe with you, and that you will not invest/divest it without my agreement?  What would happen my pension if the pension provider was to go out of business?

These questions are seeking answers about the security of the pension structure and how the assets are held. They are very valid questions and they are questions every aspiring pension holder and any advisor to the pension holder should ask.

The below table sets out the approach that ITC take compared to the standard industry approach. 

Click here to read how ITC's approach differs from others in the industry. 

Pension Shock: The Future is Now

George Lee’s special documentary “Pension Shock: The Future is now” was aired yesterday evening on RTE1. Overall, the show was interesting, but represented a somewhat  sensationalist view of the pensions situation and offered few solutions. There was a dominant focus on fees, a brief mention of the Levy and tax relief and no direct comparison of the pension classes.

Our MD Aidan McLoughlin appeared on the programme. He noted that we are facing real difficulties if we do not address the deficiencies in the system soon. We have an opportunity now to fix this problem if we are brave enough to do so.

One positive outcome of the programme will be that people will look to review their pension arrangements. The programme showed shocking examples of people who considered themselves to have sufficient pension coverage, but in reality their pensions were falling far short of the real income requirements.  

The argument for self-administered structures has only been strengthened as clients start to take back control of their pensions and look for transparent fee structures.

You can watch the programme here:

Pension Shock: The Future is Now RTÉ

Aidan McLoughlin is to appear on George Lee's special documentary, Pension Shock: The Future is Now,  this evening, Monday 17th, at 9.30pm on RTE1.

The programme is a one-hour special that looks at the looming pension crisis. George Lee talks to a number of experts, including Aidan, about the difficulties and how to address them.

TV3s Midweek - Where have our pensions gone?

Colette Fitzpatrick of TV3's Midweek programme last night looked at why so many people have lost money on their pension since the financial crisis and where exactly they gone.

Aidan McLoughlin was interviewed on the recently introduced pension levy. Based on our experience of temporary levies, Aidan commented that the four year levy may well become a permanent tax. He also commented on the unfairness of the pensions levy as it only applies to those who are now working. The bankers, property developers and politicians who created the current situation are not subject to the levy.

Aidan also noted that there are real concerns that the level of pension coverage in to the future could fall dramatically. The government's answer to this seems to be mandatory pensions. However, experience of nations that have taken this approach would suggest that it does not work. Invariably what happens is that people treat mandatory schemes as tax and so put in the minimum amount required. Obviously, this would not be an ideal outcome.

Click here to hear the full show. The pensions section starts at 17.30 minutes. Aidan is on at 19.25 minutes and again at 22.20 minutes.

Happy Birthday ITC Blog!

It’s been one year since we started the ITC blog – Independent Talk. This blog was developed as a result of feedback from our advisors who wanted regular updates on topical pensions issues and pension planning ideas. With over 50 posts, over 6,000 page views and 150+ subscribers it’s been a successful journey so far and the feedback we've received from advisors has been very positive. A big thanks to all our loyal readers for taking the time to read it and for leaving your valuable comments. At this juncture, we think it’s time to put the questions out there to you, our reader:

• How relevant have the posts been?
• Have the blogs helped you to develop ideas for your business?
• Are there any topics that you would like to see covered on the blog?

Please leave your comments below or as always email us. Your feedback helps us keep the blogs relevant and interesting for you. We look forward to the next great year ahead!

The ITC PRSA Launch - We're open for business

We are delighted to launch the ITC PRSA this week. The ITC PRSA is available exclusively through Advisors and offers the same features available in all our existing pension structures through a non-standard PRSA. For example:

• Improved security: All assets of the ITC PRSA will be held in trust and segregated from other client’s assets
• Greater control: You and your client decide on what investments are made
• Greater transparency: All fees are transparent
• Flexibility: Access the most comprehensive range of investments available
• Online access available

 

Contact us for more information on:
t:	Emer Kirk - 087 620 0820 Sean McLoughlin - 087 2319765 Michael Keyes - 086 856 4520
w:	www.independent-trustee.com/pages/PRSA/
e:	JustAsk@independent-trustee.com

Some Planning Benefits of a PRSA

A previous blog looked at the advantages a Vested PRSA has over an ARF. This blog considers some of the key planning features inherent in a PRSA:

1. Transfers- A PRSA can receive in benefits from occupational pension schemes, personal pensions and other PRSAs. No other pension structure has this flexibility.
2. Phased retirement- It is possible to have multiple PRSAs and retire from the PRSA as required thereby accessing your tax free lump sum over a multi-year period. With the recent changes to the tax fee lump sum cap, the PRSA offers the individual the ability to make more use of their income tax exemption limits.
3. Better disclosure and reporting-The regulatory regime surrounding the PRSA is probably the most thorough of any financial product available in Ireland.  In addition to the normal checks and balances imposed by the Central Bank on the PRSA provider, there are an additional set of checks imposed by the Pension Board and supervised by the PRSA actuary.  In addition to the tighter regulatory regime there are more comprehensive regular reporting requirements to the individual investor in a PRSA contract than for most other pension structures.
4. 100% allocation rate and no exit penalties- On transfer business, a PRSA provider must give an allocation rate of at least 100% and cannot impose exit penalties.  This gives individual clients much more flexibility if their financial needs change and they need to access their funds.  It also means that PRSA providers are more likely to lower the annual management charge rather than enhance the allocation rate as they don’t have the protection of the exit penalties.
5. Flexibilty – A PRSA can exist as a pre-retirement vehicle (Accumulating PRSA), as a post lump sum vehicle (Vested PRSA) or as a drawdown vehicle (Drawdown PRSA). Being able to use the one vehicle pre and post retirement results in significant cost savings and planning opportunities.
6. Availability – A PRSA can be used by employees, directors, those with self-employed income and those with no earned income at all.
7. Public Sector AVCs – The option of paying AVCs into a PRSA is enormously popular in the public sector where the choice of providers is otherwise severely restricted. Ironically, the current financial crisis is making such AVCs more popular than ever as civil servants become aware of the possibility that their pension benefits could be reduced.

For Pension Advisors the flexibility and planning potential inherent in a PRSA has led to its current success. None of the recent legislative changes have altered the natural advantages it enjoys over other pension vehicles. From a standing start in 2003 PRSAs are now the fastest growing area of the pensions market.

Paul Gilmer

How secure do I want my pension to be?

Or perhaps it might be more correct to ask how secure do I want my pension vehicle to be? Pension holders, other than those in defined benefit schemes, are already carrying an investment risk, a risk that the performance of their pension may be less than they had projected.

But what about the security of the pension structure itself? What if I have my pension with an insurance company where my pension assets are held on that company’s balance sheet and that company gets into difficulty?

Of late we have been contacted by a number of advisors in relation to pooled funds and querying the ability of the person running a fund to invest in assets that were not in the original investment proposal for that fund. We have to say that this is very rare however it is getting aired in the media at the current moment in time because of controversy elsewhere.

Taking all the feedback we are getting it is clear that advisors see the security of pensions as a significant matter. Perhaps they are looking at the UK where the current thinking is that an advisor who does not consider the security of the pension vehicle when recommending a pension to his client can be deemed to be negligent.

So, what can ITC do about security of pensions? Well, for a start we can try to get the views of the industry on a more formal basis. In that regard we have already convened a discussion where we have invited people with a significant interest in this area to express their views.

We would also like the view of the industry in general.  We would really appreciate feedback on what you as an advisor would like to see in terms of pension security. For example:

• What way would you like to see pensions structured?
• Are there any specific measures that you think would make pensions more secure and help to promote confidence in the industry?

For our part we will collate the responses and report back to you.

We will utilise that feedback to ensure that we have the most secure pension structures possible.

So please, get emailing and let us know - we value your opinion!

 Sean McLoughlin 

Part 5: Standard v non-standard PRSAs

There are two types of PRSA – a Standard PRSA and a non-Standard PRSA. The main differences between them are the charges and investment options.

What is a Standard PRSA?

1.     A Standard PRSA has maximum charges of 5% on the contributions paid and 1% a year on the managed funds

2.    Apart from temporary cash holdings, these types of PRSAs can only be used to invest in pooled funds, also known as managed funds. These are typically internal linked funds of an insurance company or a collective investment scheme.

3.    A Standard PRSA may not be marketed or sold if purchasing it is conditional on also buying some other product, such as life assurance.

What is a non-Standard PRSA?

A non-Standard PRSA does not have a maximum limit on charges and allows investments in funds other than pooled funds. This is the great feature of non-standard PRSAs - the PRSA holder can potentially invest in anything he/she wishes subject to the Revenue investment rules.

A key thing to take note of is that the SORP for a non-standard PRSA must contain the following warning notice:

“It is recommended that you seek professional financial advice about the nature of this PRSA contract”

Conclusion

Simple differences but notably the non-standard offers a lot more flexibility in terms of investment choice.

Paul Gilmer