Meet our BOB!

ITC are delighted to announce the launch of our Buy Out Bond (BOB).

Our ITC BOB enables clients to take control of their existing employment related pension benefits and invest them in their own personally owned pension plan, to access at retirement.
 
 

It is not unusual for people to change employment many times during their career and a Buy Out Bond provides a vehicle for clients to manage their previous pension benefits and invest them in a way that suits their needs.

Our ITC BOB provides 4 key features:

• Control
• Transparency
• Flexibility
• Security

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 Mc Loughlin (01) 614 9220 / sean.mcloughlin@independent-trustee.com
• Martin Glennon (01) 603 5130 / martin.glennon@independent-trustee.com

www.independent-trustee.com

Fianna Fail Launches Pension Strategy Paper

The Fianna Fail pension strategy, launched today by Willie O’Dea, deals with several issues close to our heart:

1.       The funding requirements for DB schemes

2.       The priority order for DB schemes on wind up

3.       Early Access to Pensions and

4.       The issue of Pension Charges

As chair of the Pensions Committee of the IBA I have actively involved in communicating with politicians of all shades on the issues facing pensions. The paper launched by Willie O’Dea is testament to the fact that patient and consistent dialogue does have an impact.

The funding levels DB schemes have to met is set at artificially high levels due to:

1.       the historically low level of bond yields and

2.       the additional reserve requirement imposed by the current government

The Paper proposes that this be addressed by easing the funding requirements and allowing greater flexibility as to when and if annuities are purchased.

In relation to the priority order the Paper suggests that, once a certain level of pension has been guaranteed in priority to pensioners the balance should rank equally with other members of the scheme. This would address the big gap in benefit that can exist between members either side of retirement age.

The current early access regime is too restrictive (as it only applies to AVCS) and mean spirited (as it imposes an additional 41% tax on those in difficult financial circumstances). The solution proposed is to replace it with an option to take some or all of your tax free lump sum at any stage in your life. There is no loss of tax to government and the greater flexibility enhances the attractiveness of pensions and gives relief where it is due.

On pension charges the Paper proposes the development of a Total Expense Ratio so that fund manager costs can be more easily identified. Also greater transparency on other costs is advocated.

 

To view the full paper click here.

Written by Aidan McLoughlin

Independent Trustee Company

Managing Director

Where's the money going? Part Two

In my “Where’s the money going?” Blog (Feb 14th, 2013), I mentioned the growing area of the Advisor Portfolios or Advisor Propositions.

 

To explain some of the reasons for this growth, let me go back to that period between 2007 and 2009. At the time it was estimated that 70% of pension money was held in Managed funds. A well established, general one-size fits all approach with some add-ons attached over the years i.e. Consensus and Life-styling. The strength of the Managed fund was diversification.

 

 

As we know, there’s nothing like a health scare to get a client to question his/her protection benefits. And in the same way there’s nothing like a market crash to get a client to question what went wrong?

 

 

For me some of the big questions that came from the crash about Managed Funds were:

• Did clients believe that a fund manager could switch easily to other assets?
• Were clients aware of the restrictive parameters that were set for asset allocation?
• Were clients aware of peer pressure, with fund managers constrained by benchmarking?

 

In summary - Who was managing the risk?

 

 

The realisation of the constraints of a Managed Fund, were hitting home hard. There were very few clients who had the knowledge (or interest) of how a Managed Fund operates, but the impact to their funds got them to take notice. That notice came in the form of worry, panic, anger and accusation. Not a pleasant time for all involved.

 

The response from fund managers has been to develop and promote their absolute return or risk-managed funds. A promise to focus on the risk and not just the assets.

 

The growing response from Advisors, has been to take ownership of a clients asset allocation and risk management. The availability of platforms, index funds, ETFs, bank deposits, stockbroking accounts etc. has made it easier to offer a more involved and controlled strategy.

 

Advisors who have adopted this investment model believe that this offers a more collaborative approach with clients and promotes a better client relationship.

 

The growing number of Certified Financial Planner ™ professionals and the possible move by the Central Bank to a review similar to the UK’s Retail Distribution Review, are other contributors to ITC seeing an increase in the Advisor Portfolio/Proposition approach.

 

As you know, the ITC products offer the Advisor and their clients, the structures to have choice, transparency and control.

 

 

Martin Glennon

Corporate Account Manager

Independent Trustee Company

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!

 

Tommy Nielsen

ITC Consulting

Finance Act 2013 – the Bill

The Government published Finance Bill 2013 on 13^th February 2013.

In the area of pensions, the Government introduces new thresholds to the regime for ARFs and vested PRSAs. The measures are significant because they contravene previously introduced efforts at securing pensioners’ retirement income in old age.   The new thresholds, which had not been flagged by the Minister in his Budget speech in December, means that the thresholds which applied to ARFs pre-Finance Act 2011 will now see a comeback.

Since Finance Act 2011, members of Occupational Pension Schemes and contributors to Personal Pensions and PRSAs who have an annual pension income of €18,000 can take the entirety of their pension benefits into an ARF.  Those who do not have sufficient pension income must first set aside pension benefits to the value of €119,800 in an AMRF - or buy an annuity for that amount. The AMRF has to be kept until age 75, or until such times as the pensioner becomes entitled to an annual pension income of €18,000 (whichever is the earlier).

However, from the passing of the Finance Act, the requirement of a €18,000 pension income will be reduced to €12,700. This means that recipients of the Old Age Pension (currently around €12,000) who have very limited additional pension income, no longer have to put money aside for very old age. Accordingly, Finance Act 2013 effectively marks the beginning of the end for the prudence of thinking which infused the AMRF concept.

Furthermore, from the date of the passing of the Finance Act, the max value of the AMRF will be reduced from €119,800 to €63,500.  But it is perhaps more precise to say that the value of ARFs will be increased by the difference, namely €56,300. This is significant because ARFs are subject to imputed distributions which, in turn, are subject to income tax - while AMRFs are not. So, bigger ARFs, bigger income for the Exchequer. While there can be no other reason for decreasing the value of the AMRF other than to improve the tax take for the Exchequer, the measure is, seen in isolation,  perhaps of little importance as the AMRF regime is on the way out – as already argued.

Another measure, one which was flagged in the Budget, is the access to AVCs prior to retirement in certain circumstances.  An individual who has made AVCs can make a once-off withdrawal of up to 30% of the value of their AVCs prior to reaching retirement.  This is restricted to AVC funds. Access to other types of pension arrangements, such as personal pensions, is not available.  The access to AVCs will be available for a period of 3 years from the passing of the Finance Act 2013.

Funds withdrawn in this manner will be subject to income tax at 41% but will be exempt from USC and PRSI.  If an individual can provide a certificate of tax credits or evidence that they are subject to income tax at the 20% rate, the tax payable may be less than 41%.

While this would appear to be a welcome measure at first glance, on reflection it could once again signal the government’s shift to short-sighted policies to increase the short term tax take from pension funds.  As with the changes to the AMRF regime, allowing early access to AVCs only serves to reduce the benefits available to fund an individual’s retirement which may once again leave them dependant on the State later in life.

 

Tommy Nielsen & Jennie Faughnan

Independent Trustee Company

Where’s the money going?

One of the most common questions I get asked when on my visits to Advisors is - “What are people doing with the money once they’ve set up an ITC self-administered structure?”

Let me state first that what follows is an observation of movement of existing and new money. As you know, ITC does not offer investment advice, so please don’t confuse the following as a recommendation. If you require any advice in relation to the following, please contact your Advisor.

With our compliance department now satisfied, I think the best way to answer the above question this is to look at the main areas of client interest in 2012.

 

Area 1 - Deposits

The banks thirst for deposits during 2011 and average inflation at 1.65%, made it very easy for investors to achieve “Real” growth with little or no risk.

It was noticeable in 2012 that the banks had changed their tune and were pushing headline rates down and this is expected to continue throughout 2013.

Despite the downward pressure on deposit rates, demand from clients has remained strong and an expected inflation rate for 2013 of 1.3% (HICP) is unlikely to dent this demand.

What we have seen, however, is a shift from short term deposit accounts to the more long term.

These trends are backed up by statistics from the Dept. of Finance.

• Deposits from Insurance Corporations and Pension funds increased by 6.9% in 2012.
• Shorter term deposit rates (less than 2 years) reduced from 3.57% in Jan 2012 to 3.35% in Nov ’12.
• Longer term deposit rates (more than 2 years) increased from 2.37% to 2.42% over the same period.

It’s no surprise that ARF clients are the biggest supporters of deposit strategies. Their age profile means that they have less appetite for risk. This has resulted in over 60% of ITC ARF funds being held in deposits.

We contacted the insured companies towards the end of 2012 regarding the charging structure of their ARF products. An annual management fee of 1% is very common.

This probably explains the inflows to the ITC ARF. Choosing an annual management charge of 0.5% gives most clients a reduction in fees, full access to the deposit markets and covers the Advisors continued work of research, recommendation and implementation.
 

Area 2 - Broker Portfolios

What I’m talking about here is where the Advisor has built their own offering for clients through the use of insured funds, stockbroking accounts and funds, deposit agencies etc.

The ITC products work really well in providing Advisors and clients the structures for choice and control of investments.  

The Advisor assists the client in understanding their attitude to risk/loss, and then builds an agreed portfolio around their goals and objectives.

The strengths of this approach are obvious. The client has a better understanding and more involvement in the process. This gives the client more clarity and control. There are more touch points with the client which, results in a much stronger relationship between the client and Advisor.

For many reasons (to be covered in a future blog), we believe that this type of strategy will continue to grow in 2013 and beyond.
 

Area 3 – Property

We’ve seen a significant pick up in activity for both Commercial and Residential property and the following gives an indication why we have had this activity from existing clients and new clients moving away from traditional insured funds.

• The consensus from the major estate agents is that for prime commercial property in the major cities, prices have stabilised.
• Residential property continued to fall in 2012. In Dublin it was down 2% and down 9% for the country as a whole. But South County Dublin saw an average increase of 3.1%. (Daft.ie)
• Rental yields are averaging 8.8% and the average residential property price was €140k. (Allsop Space/Goodbody 8/12)

The one thing we haven’t seen is leverage. The lenders experience of negative equity and overall impairments has obviously affected their appetite to lend. Will lending to pensions happen again? Yes, I believe so, but in prime property and with lower loan to value ratios.

Martin Glennon QFA CFP® 

Corporate Account Manager
Independent Trustee Company

Personal Insolvency Act 2012

The Personal Insolvency Act was signed into law by a busy President on Stephen’s Day.  Many column inches have been devoted to its impact on debtors and creditors alike, but little has been written about its effect on pension schemes. However, amendments introduced at a very late stage by the Minister of Justice and Equality in the Seanad will potentially have a significant impact on schemes.  Advisers must be aware of them.

There are 3 important principles:

•   An individual’s pension fund will not, in itself, be available to creditors. 

Specifically, under the Act a pension fund will not pass to the “official assignee in bankruptcy” of an individual made bankrupt; nor will it count towards a person’s asset exemption limit for the purposes of qualifying for the basic Debt Relief (which is the first of the 3 debt relief mechanisms under the Act); and nor will a person who enters into a Debt Settlement Agreement or a Personal Insolvency Arrangement (the second and third relief mechanisms) be required to surrender their pension fund.

This rule backs up existing legislative requirements preventing the assigning or charging of pension funds and indeed the recent case of EBS v Hefferon & Kearns with which we were involved.

• On the other hand, “pensions in payment”, i.e. pension benefits being paid out to a pensioner, will be available to creditors and the official assignee or trustee in bankruptcy.  Benefits which have been deferred by the pensioner will also be available.  So, any pension income actually being received or receivable will be at risk.

However, a person who enters into a Debt Settlement Agreement or a Personal Insolvency Arrangement under the Act will not be required to draw down a pension early.  An important protection.

• Where “excessive contributions” have been made to a pension arrangement within 3 years prior to a bankruptcy or a person entering into a Debt Settlement Agreement or a Personal Insolvency Arrangement, the court can order that those contributions are made available to creditors.

Broadly, this is good news and should provide comfort to pension scheme members that their pension funds are protected.  However, at present Approved Retirement Funds (ARFs) are not regarded as “approved retirement arrangements” for the purposes of the Act and so ARF funds are not protected.  While this is consistent with Revenue’s view that ARFs are not pensions, many would consider it unfair in that they are quite rightly regarded by clients as their pension funds.  The Minister is empowered to bring other pension arrangements within the ambit of the Act and it is to be hoped that he will do that in the case of ARFs.

One final recommendation for all advisers. When advising on the set-up of a pension arrangement, advisers must always bear in mind the security of the arrangement in relation to creditors.  If it were needed, the Personal Insolvency Act emphasises the importance of appreciating that not all pension structures are treated the same by the law.  Clients must be advised accordingly. 

Jeremy Mitchell

ITC Consulting