Aidan McLoughlin - Irish Pension Personality of the Year

Last night the Irish Pension Awards took place in Dublin's Burlington Hotel. The awards, only in their first year aim to honour the pension funds, small and large, DB and DC, as well as the investment firms, consultancies and pension providers and individuals that have set the professional standards in order to best serve Irish pension funds in these ever challenging times.

ITC are delighted to announce that Aidan McLoughlin won the Irish Pension Personality of the Year award. On behalf of all the staff in ITC we would like to take this opportunity to congratulate Aidan on this very well deserved award.

ITC were also shortlisted for the following awards:

• Administration Award
• Communication Award
• Pension Consultancy of the Year Award - ITC Consulting
• Innovation Award - ITC & ITL

Budget 2013 - Act Now?

Every year around this time we see a lot of clients wishing to take action before Budget day. Whether it is making contributions or accessing their benefits, the general sense is that, while they don’t know what will happen in the Budget, they don’t expect there to be many changes for the better.

This year is no different and with reports in the media every day speculating about what changes Budget 2013 will bring, when it comes to your and your clients’ pensions, what should you do?

Tax Relief on Contributions

There is much speculation that tax relief on pension contributions will be cut for marginal rate tax payers.  This was one of the proposals in the Programme for Government and the National Pensions Framework and one of the few pension related changes that has not yet been implemented.  Tax relief for marginal rate tax payers may be cut to 20%. 

Could you still avail of the higher rate of tax relief if you make your pension contribution before the Budget? 

Pension Fund Threshold

The pension fund threshold imposes an excess fund tax on pension funds over €2.3m at the date at which they are accessed. This threshold was reduced in 2010 from €5.4m. The Fine Gael manifesto stated that they intended to reduce this to €1.5m. There is much talk in the media that ministers believe that an annual pension of €60k should be enough for anyone in retirement. Using the same capitalisation factor used to value the fund threshold, this would equate to a threshold of €1.2m. In reality, however, a fund of €1.2m would not buy you an annual pension of €60k.  It is more likely to buy an income of around €30k per annum. 

If the threshold is to be reduced in the Budget, should you fund your pension as close to the €2.3m threshold as you can now?

Pension Cap

The other way of restricting pension benefits to an annual income of €60k would be to impose a “super tax” on pension payments above €60k per annum or to limit tax relief on contributions which deliver a pension in excess of €60k.  This would appear to be a more popular method as it would target those on large pensions who we have heard so much about in the media recently. 

However, with the minister for health recently stating that the average annual cost of a nursing home is €100k per annum, the €60k annual pension does not sound like it would go too far if these circumstances arose for you in retirement.  In this context, it may not make sense to fund up to the maximum fund threshold at this time as you may be penalised by the “super tax” when you drawdown your benefits.

Unfortunately, we don’t have a crystal ball and we can not predict what changes Budget 2013 will bring. It does, however, provide an opportunity to review your and your clients’ pension provisions and assess what options may be available.

Jennie Faughnan

ITC Consulting

ITC, in conjunction with the Irish Brokers Association are holding a Budget Briefing Webinar on Thursday December 6th. The briefing will focus on pension changes, capital taxes and retirement planning. Register below to reserve your place. Due to popular demand a second webinar has been scheduled and spaces are limited.

Agricultural Relief and Pensions

When we think of farmers we don’t generally think of pensions, but they clearly are of benefit, not only for the usual pension reasons, but also for tax planning reasons. Agricultural Relief is an example of this worth noting.

Agricultural Relief is a relief available to individuals who receive a gift or inheritance of agricultural property. If a person qualifies for Agricultural Relief, they will only pay Capital Acquisitions Tax (“CAT”) on 10% of the value of the agricultural property inherited. One of the main qualifying criteria for this relief is that at least 80% of the value of the person’s assets, after taking the gift or inheritance, is comprised of agricultural property.

The Revenue Commissioners have confirmed that an interest in a pension or pension fund can be ignored by the holder of this asset when calculating whether a beneficiary meets the 80% agricultural assets farmer test.

 

The effect of this is that a person could avail of significant CAT savings if they were to have long term savings in a pension fund, as opposed to holding these savings outside of a pension.

The examples below illustrate the potential CAT savings that could be made if a person has invested some of their assets in a pension, as opposed to holding them personally.

Example 1 – No Pension/ Pension Fund

Non-agricultural Assets                        €200,000

Agricultural Assets Inherited                 €700,000

Percentage of Agricultural Assets                78%

Person will not qualify for Agricultural Relief as less than 80% of their assets after taking inheritance are comprised of agricultural assets. Therefore, the person will be liable to CAT on the entire inheritance, leading to a substantial tax liability as can be seen below.

Agricultural Assets Inherited                  €700,000

CAT @ 30%                                         €210,000

Example 2 – With Pension/ Pension Fund

Non-agricultural Assets                         €150,000

Pension Fund                                       € 50,000

Agricultural Assets Inherited                  €700,000

Percentage of Agricultural Assets                 82%

Person will qualify for Agricultural Relief as in excess of 80% of their assets after taking the inheritance are comprised of agricultural assets. Therefore, the person will be able to avail of agricultural relief, resulting in a very significant tax saving.

Agricultural Assets Inherited                  €700,000

Less Agricultural Relief (90%)                €630,000

Liable to CAT                                       €  70,000

CAT @ 30%                                         €  21,000

As can be seen from the above examples, a person who has invested in a pension fund will pay 90% less CAT than the person who has not, as the pension is used to reduce the value of the person’s non-agricultural assets which results in the “80% test” being satisfied and therefore Agricultural Relief can be claimed on the inheritance.

Routing a person’s long term savings through a pension/ pension fund can therefore result in significant CAT savings, in addition to the benefit of being able to avail of income tax relief and the benefit of the pension asset increasing in value tax free with a tax-free lump sum at retirement. For anybody who has an expectation of receiving a gift or inheritance of agricultural property in the future, a pension should be strongly considered not only as a way to provide an income in retirement, but also as a potential tax planning tool.

Paul Wymes

ITC Consulting

We won't go to the same lengths as Will Ferrell...

Have you heard the good news? Aidan McLoughlin, Managing Director of Independent Trustee Company has been shortlisted for the Irish Pension Personality of the Year Award. The award, taking place as part of the Irish Pension Awards aims to recognise the individuals that have truly made their mark in the Irish pensions space in recent years.

The winner of this award is decided through a public vote and while we won't go to the same lengths as Will Ferrell, we would really appreciate your support!

You can vote for Aidan by clicking on the link below and if you could share the details to those within your organisation we would be grateful. 

VOTE Aidan McLoughlin - Irish Pension Personality of the Year Award

We are delighted to announce that ITC Managing Director Aidan McLoughlin has been shortlisted for the Irish Pension Personality of the Year Award. The Award, taking place as part of the Irish Pension Awards on November 21st, aims to recognise those individuals that have truly made their mark in the Irish pensions space in recent years. The voting proccess for this award is slightly different than the rest as the winner is decided through a public vote. We would appreciate your support on this and you can vote for Aidan at the link below. Voting closes on November 7th.

A leading visionary and thought leader in the Irish pensions Industry since 1987. As a solicitor and tax consultant Aidan has pioneered the self-administered pensions market. He passionately combines managing ITC alongside his tireless work with industry bodies developing the Irish pensions Industry.

 

Aidan passionately combines managing ITC alongside his tireless work with industry bodies developing the Irish pensions Industry.

His achievements include:

• Fellow of the Irish Taxation Institute and Irish Association of Pensions Management 
• Founding Chairman of the Association of Pensioneer Trustees of Ireland 
• Chair of the Irish Brokers Association Pensions committee 
• Editor of the Irish Taxation Institute’s Pensions - Revenue Law & Practice
• Member of the Association of Pension Lawyers of Ireland

Many thanks,

 

Michael Keyes

Sales and Marketing Director

Independent Trustee Company

OECD Review: In 2020 20% will receive nothing

In our third blog post on the OECD Review, we look at State pension receipt. 

As it currently stands, 50% of retirees are receiving a full state pension, this is to decrease to 46% in 2020. Looking at the below chart, we can also see a further decrease in those receiving 90%-100% but an increase in those receiving 33-90%. In 2020, 20% will receive nothing.

Looking at these statistics, how much of an additional sum will retirees need to provide themselves with an adequate pension? The OECD are due to make recommendations on this in the second part of their report.

Dáil Drawdown: Standard Fund Threshold

Minister Noonan went on to say; "there is currently no underlying data available to my Department or to the Revenue Commissioners on which to base reliable estimates of the savings from a further significant reduction in the SFT to the level indicated in the question. Information on the numbers and values of individual pension funds or on individual accrued benefits are not generally required to be supplied to the Revenue Commissioners by the administrators of pension schemes and personal pension arrangements. The estimated savings indicated at the time in respect the Budget and Finance Act 2011 change in the SFT were quite conservative, based as they were, on incomplete data and using very broad assumptions. Indeed, those underlying data and assumptions may not be directly applicable to determining the effect of a further significant decrease.

My Department has been engaging with representatives of the pensions industry with a view, among other things, to gathering private pensions-related data which may be of value into the future in estimating the costs of potential changes in the pensions’ tax area. These engagements are ongoing".

Source: www.oireachtas.ie

OECD Review: Financial Sustainability

In our last post on the OECD review, we discussed how Ireland's policy stance measured up against key criteria, looking at the performance of the Social Insurance Fund. Another item on the OECD's agenda is that of financial stability and how it is evaluated through international analysis. The first step to this evaluation is to look at international comparisons. 

As you can see from the chart below, in 2010, Ireland ranked somewhat average in our public expenditure on pensions, with the inclusion of all government pension costs; contributory, social welfare pensions, non-contributory pensions and public sector pensions.

If you look at the next chart, you can see that the projected change in expenditure is quite significant between 2010 and 2060, Ireland projected to rank third on the table.

The charts highlight the rising cost of State funded pensions which the National Pensions Reserve Fund (NPRF) was intended to offset.

Broadly speaking 1/3^rd of the NPRF covered public sector pensions whilst 2/3rds covered social welfare pensions.

The fastest increasing cost is public sector pensions. These grew from an estimated capital cost of €75bn in 2007 to €129bn in 2009. No figures have been produced since, however it is likely that that cost has continued growing.

Source: OECD Review of Pensions in Ireland, 14.09.2012. John Martin, Edward Whitehouse, Anna D'Addio, Andrew Reilly. 

Dáil Drawdown - Pension Industry Charges Working Group

In this weeks instalment of Dáil Drawdown, Minister Noonan discusses the pensions working group. Let us know your thoughts. 

Minister Noonan went on to say: I understand that the report of this group is currently being finalised and will then be presented for consideration to my colleague, Ms Joan Burton TD, the Minister for Social Protection before being submitted to Government and published. Appropriate decisions will be made on the report’s contents and recommendations, and among other things, on the scope for productive interaction with the pensions industry in relation to offsetting the impact of the pension fund levy through reductions in fees or charges.

Source:www.oireachtas.ie

Commercial Court rules creditors cannot access pension funds

The High Court, on Tuesday, delivered judgment in a significant case on pension security on which ITC Consulting advised.

In the case, a bank, owed money by two individuals, initially succeeded in appointing a receiver over the individuals’ pension assets in March this year.  The appointment was appealed to the Commercial Division of the High Court and the very welcome news for many pension holders is that the Court struck out the appointment of the receiver on Tuesday.

The Court considered that the characteristics of the pension schemes precluded the appointment of a receiver. The schemes concerned were individual self-administered schemes and ITC Consulting was appointed by solicitors for some beneficiaries of the pension schemes to give an expert opinion.

     

The prevailing view in the pensions industry was that pre-retirement benefits were not vulnerable to attack by creditors.  However, there was no clear Irish legal authority on the point so the matter was not absolutely free from doubt until the judgment. The 2010 case where a receiver was appointed over Brendan Murtagh’s Approved Retirement Fund had also caused concern.  The issue has received significant attention from the media and commentators as for many people their pension is their most valuable asset and the idea that somehow creditors could access someone’s pension was an understandable worry.  Thankfully, the judgment has now clarified matters in favour of the pension holders.

It is important to note that, whilst most Irish pension schemes have the same characteristics as the pension schemes in the case, all scheme documents must be reviewed to ensure that appropriate protections are in place. This is a service that ITC Consulting is well placed to provide in view of its experience in this area.  

Barry Kennelly

Associate Director

ITC Consulting

OECD Review of Pensions in Ireland

At a recent consultation forum in Farmleigh House, the OECD presented the first part of their review of pension policy in Ireland. The presentation, which focused on the initial stage of the review; assessment and evaluation, was presented by John Martin and Ed Whitehouse. ITC's Managing Director Aidan McLoughlin attended the forum and over the coming weeks we will bring you some of the main points discussed. 

As mentioned, the initial stage of the review is the assessment and evaluation stage. The second stage which will presented at the end of the year will see recommendations from the OECD.

The OECD set out a three-pronged strategy for achieving both adequacy and sustainability:

• longer working lives
• greater private-pension savings
• better targeting of public retirement- income provision on those most in need

They ask how does Ireland's policy stance measure up against key criteria?

A key test was the performance of the Social Insurance Fund. This is where PRSI contributions are paid and which will ultimately provide contributors with Social Welfare pensions. Its ability to do this depends on its solvency. As the following slide illustrates the view of 2010 (as projected in 2007) and the actual outcome is radically different – a 30% deficit has now materialised. This fundamentally challenges the ability of the State to continue to deliver Social Welfare pensions at current levels. Those relying on the State for a significant portion of their retirement income should think again.

Over the coming weeks we will discuss the steps taken to resolve this significant deficit and see overseas comparisons in relation to pension provision. 

Source: OECD Review of Pensions in Ireland, 14.09.2012. John Martin, Edward Whitehouse, Anna D'Addio, Andrew Reilly. 

Dáil Drawdown - Early release of pension funds

In another instalment of Dáil Drawdown, early release of pension funds is discussed. Let us know what you think of Deputy Patrick O' Donovan's proposal. 

Deputy Michael Noonan went on to say:

"A number of proposals have been made that individuals should be allowed access to their pension savings prior to retirement. Various rationales have been advanced to justify these proposals, including that such access would allow those individuals to pay down mortgage and other debt and would otherwise provide a boost to economic activity.

This is not a simple matter. During 2011, at the request of the Government’s Economic Management Council (EMC), an ad-hoc group was established under the chairmanship of the Department of Social Protection to consider the idea of allowing people to access their pension savings before pension age in order to assist them in paying down debt. The ad-hoc group presented a detailed report to the EMC in September 2011. The conclusions of the Aa-hoc Group report were that:

Ø There is no evidence that, in general, the group likely to be most affected by mortgage debt (or other debt) has access to sufficient pension savings to make a difference to their situation.

Ø The legislative and administrative implications for such a scheme would be extremely complex and would appear excessive given the overall impact.

Ø Longer term difficulties whereby people are not making adequate provision for their retirement would be exacerbated, with potential for increased demands on the State.

Ø Individuals cashing in their pension savings now would get poor value in current circumstances which they would struggle to replace in the future.

The “Keane Group” on mortgage arrears did not dispute these findings and early access to pension savings did not feature among the recommendations of that Group. A more general scheme of early access to pension savings would present significant problems in terms of the proper targeting of the use of accessed funds and controls over potential abuse.

The tax treatment of pension savings for which I have responsibility is only one aspect of the broad policy of encouraging people to provide for an adequate income in retirement beyond the basic State pension. This policy area is the responsibility of my colleague, Ms Joan Burton TD, Minister for Social Protection, who I know is also aware of the proposals being made for early access to pension savings. The OECD is currently carrying out an independent review of long term pension policy in Ireland on behalf of the Minister for Social Protection. I have been advised, in response to a request from me in this matter, that the terms of reference of the independent review are such as to facilitate consideration of the issue of early access to pension savings and I would expect that the OECD review would deal with this issue".

Who is your scheme administrator?

With the increasing number of complaints being made to the Pensions Ombudsman, it is worth noting some of the decisions published by his equivalent in the UK. One recent decision which made me stop for a moment, was the decision by the UK Ombudsman in the determination of a complaint by a Mr Middleton (80448/1) where it was held that a financial adviser who takes on administrative duties relating to a pension fund transfer comes within the Pensions Ombudsman's jurisdiction as an "administrator" concerned with the administration of an occupational pension scheme. This is the case even if the adviser does not consider that it was appointed or paid to provide such services, and regardless of whether such actions might contravene regulatory rules. The Middleton case was taken as a result of a loss caused by a delay by Mr Middleton’s financial advisor to act on a set of instructions. The advisor took six weeks to request a fund discharge form from a life company. Secondly, it did not pursue the life company quickly enough when the forms were lost. Thirdly, it mistakenly advised Mr Middleton that the transfer value could not be lower than the last available figure provided.

It was held that the advisor had a duty to "carry out these administrative tasks efficiently and on a timely basis" but that the advisor had instead been responsible for several delays and mistakes amounting to maladministration.

So how would such a case pan out in Ireland? The Pensions Ombudsman's jurisdiction is governed by:

·         The Pensions Act 1990-2012 (the “Act”)

·         The Pensions Ombudsman Regulations 2003 (the “Regulations”)

The Ombudsman has jurisdiction to investigate specified complaints against or disputes with persons responsible for the management of an occupational pension scheme (scheme) or Personal Retirement Savings Account (PRSA). Under s131 of the Pensions Act the Ombudsman may investigate a complaint relating to maladministration “done by or on behalf of a person responsible for the management of that scheme.”

Section 126 (3) and (4) of the Regulations specify those who are deemed to be responsible for the management of a scheme or PRSA. Article 3 of the Regulations extends the category of person deemed to be responsible to include the administrator of a scheme or PRSA to the following:

1.  any person providing a service in relation to the administration of a scheme or a trust rac;

2.  any person to whom the performance of the duties of trustees of a scheme or a trust rac under section 59 (1) or (2) of the Act has been delegated;

3.  any person who is the administrator of the scheme or trust rac for the purposes of section 770(1) of the Taxes Consolidation Act 1997; or

4.  any person to whom the application or interpretation of the rules of a scheme or trust rac has been delegated in accordance with those rules.

While it is often clearer, in the case of non-insured arrangements, who the administrator (s) is, it is not so clear when it comes to the establishment of a pension arrangement by a life company where the paperwork usually appoints the employer company as the scheme administrator.

But when issues arise, I have no doubt the employer company would consider the adviser and the pension provider as the administrator. This issue is only now coming to the attention of the Ombudsman, and indeed the Irish courts, and I am sure some interesting cases will be issued over the next couple of years due to the fact that the legislation detailed allows the definition of an administrator to be widely construed.

Paul Gilmer

Solicitor

ITC Consulting

Register now! Only 30 spaces left for upcoming Knowledge Forum

Our upcoming Knowledge Forum 'Faster, Higher, Stronger' is filling up quickly, register  today and don't miss out!  

The event will begin with a presentation on up and coming developments within the pensions industry from ITC Managing Director Aidan McLoughlin. We are also delighted to welcome Irish Olympic Performance Psychologist Gerry Hussey back to ITC where he will share his most recent experience from the London Olympics and advise us how we can perform at our best.

Faster, Higher, Stronger - CPD Event

12^th September 2012 08.30am 

Webinar or In House Attendance

To register for the webinar click on the button below which will take you to the registration window, alternatively if you would like to attend in person in our office on Harmony Row e-mail JustAsk@independent-trustee.com. Spaces for in house attendance are limited.

An application for 1.5 hours of CPD will be made closer to the date. CPD certificates will be circulated after the event.

Register now and make sure you don't miss out!

5 Reasons to recommend ITC

Independent Trustee Company are delighted to announce that we have been shortlisted for 5 Irish Pension Awards. The awards which will take place on 21st November 2012 aim to give recognition to pension funds and providers who have proved their excellence, professionalism and dedication to maintaining high standards of Irish pension provision. The categories that we have been shortlisted for can be seen below.

You can find out more information on the awards here.

Generation Y Not

Retirement is too far off and I prefer to enjoy my money now. Sound like what you would expect to hear from a twenty something today? Well it’s not far off! In a recent survey commissioned by ITC, retirement being too far off was found to be the main factor for the reluctance to invest in a pension amongst Generation Y.

Described as the ‘here and now’ generation, it seems that Generation Y view retirement planning as somewhat of an afterthought. In a time when staying with your current employer for longer than three years seems like a lifetime, joining a company pension plan is probably not a top priority for most. But how sustainable is this and what does it mean for the future of this generation? Do they hope to rely on the state pension, currently valued at €12,000 per annum or have they even thought about it? Growing up in an era of prosperity yet arriving at a destination of economic turmoil, are many simply avoiding their financial responsibilities?

Is the issue the challenge of engagement or has the industry simply not tried? Generation Y are seen as the hardest generation to reach, not surprising given the media rich environment that they have grown up in. As an industry, is it our duty to highlight the issue in a way that will force this young population to stand up and pay attention? By 2025 Generation Y will make up 75% of the world’s workforce. This is a scary statistic when you fast forward to retirement time.

Are the consequences of enjoying money now to be realised too late for Generation Y? Not if we adapt our strategies to suit their needs. An on the go generation that demand convenience and accessibility, a pension plan to suit Generations Y’s lifestyle is lacking within the marketplace. But what would the ideal pension product for this demographic look like? It must start with ease of access, the option of early drawdown and bundled solutions that will allow for planning opportunities. We are in need of a product that will work in harmony with the lifestyle choices of the individual.

The dramatic change in how consumers of this generation engage with products demands that we adapt our strategies in order to stay relevant. The product has to be right but indeed so does the message. Pensions need to be marketed in a way that is relatable; relating the cost back to real life terms and demonstrating the consequences of not making retirement provisions.

There is an exciting opportunity here if it is executed in the right way.

Melanie Farrell

Independent Trustee Company

Dáil Drawdown - NPRF

In this installment of Dáil Drawdown, Deputy Michael McGrath asks the Minister for Finance for more information on the National Pensions Reserve Fund.

Source:www.oireachtas.ie

Dáil Drawdown - Drawdown of Pension Funds

Source: www.oireachtas.ie

A third of workers plan to rely solely on a state pension

In a recent survey conducted by Amarach Research, it was found that a third of workers plan to rely solely on a state pension, the Irish Independent reported today.

The state pension currently stands at just under €12,000 per annum which is about one third of the average wage (€35,849, CSO 2011). These figures mean that many people will find it almost impossible to keep up their current standard of living if they rely solely on the state. In a recent report by the IAPF it was found that there was a large gap between what people expect from the state pension and what they will receive in reality. This gap is likely to get wider.

The survey, conducted with 1,000 adults shows that only 4 out of 10 people plan to use a combination of the state pension and private retirement income. It was also found that three-quarters of people do not know how much they are paying in annual pension charges and just one in 10 shop around for pension products (Independent.ie).

The importance of private pension provision is unquestionable, relying solely on the state pension will not ensure long term financial security for most.

You can read the full article here.


Melanie Farrell
Independent Trustee Company

A diamond is forever, but what about your pension?

Any employers who are currently acting as trustee on their group pension scheme and are querying the value of appointing an independent trustee may be interested in reading the article by Tim Healy in the Independent - Ex- De Beers pension fund members are owed €50m, court hears.

This case outlines very clearly the inherent conflict of the employer trustee, particularly in a wind up situation. One of the main duties of a trustee is to act in the members best interest. It can be very difficult for a member trustee, who is employed by the company, or a company trustee who has an allegiance to the employer to separate out these roles and only act with only the members interest in mind. As can be seen in this case to do otherwise can leave the trustees open to legal action by the members. The members claim in this case is thought to be valued at €40-50 million. By appointing an independent trustee you can avoid this potential conflict.

Niamh Quirke

Technical Associate

Independent Trustee Limited

Dáil Drawdown

Dáil Drawdown is a new edition to our blog and brings you recent pension news straight from the Dáil Chamber. Here is our first installment.

Source: www.oireachtas.ie