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

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