Wishing you a Merry Christmas and a Happy New Year from ITC

The ITC team would like to take this opportunity to wish all our readers a very Merry Christmas and a Happy New Year.  Our office will be closed from Tuesday December 24th 2013 to Wednesday January 1st 2014. We will reopen on Thursday 2nd January 2014.

We will be back in 2014 with more from Ireland's first truly independent pensions blog!

www.independent-trustee.com

Dail Drawdown

Yield from the taxation of the annual imputed distribution of ARF assets 2007 – 2012

Year	Yield (€ million)
2007 (earliest available)	2.75
2008	6.5
2009	7.9
2010	10.3
2011	11.6
2012	11.5

Reprioritisation of Benefits: the real winner is…?

5 years into the financial crisis that destroyed the Balance Sheet of almost all DB schemes  (and 18 months after a comprehensive solution backed by IBEC, ICTU and certain pension bodies was presented to the Minister) action has finally been taken to restructure the Priority Order.

Why that is necessary can be illustrated by looking at a scheme with 2 members (1 pensioner, 1 active), an insolvent employer and a fund value of €500,000:

A. Before Financial Crisis

Value of Pensioner liability   €350k

Value of Active liability        €150k

Funding for Actives             100%

B. After Financial Crisis

Value of Pensioner liability   €500k

Value of Active liability        €150k

Funding for Actives              0%

The deterioration was primarily caused by the decline in bond yields in Germany which meant annuities became more expensive and therefore more of the fund was allocated to pay pensioner benefits.

The new rules now mean (in scenario b above) that where both the employer and pension scheme is insolvent (Double Insolvency) the balance will be rejigged as follows:

C. After Minister’s announcement

Value attributable to Pensioner    €425k

Value attributable to Active         €75k

Shortfall                                     €125k

Earlier this year the European Court of Justice ruled that the Irish State had failed to provide adequate protection to members of such schemes. The net effect of this was that, under scenario b above, the State was facing a liability of at least €75k. This liability will now be Nil – the pensioner is picking up the tab.

Note that in the recent budget the Minister for Finance also raised an additional levy on pension funds to pay for this liability –money he can now use for other purposes.

The real winner is the Government!

Important Pension Change - Act Now

Budget 2014 reduced the standard fund threshold (SFT) from €2.3m to €2m.

This means that, when an individual accesses their pension benefits, if the value of all pensions held by that individual exceeds €2m, the excess will be subject to an effective rate of tax of up to 70%! 

While a fund of €2m may seem quite large, it in fact equates to an annual income in retirement of around €50,000 so it may affect more pension savers than you would initially imagine.

In a recent survey conducted by Independent Trustee Company, 75% of the advisors polled said that   securing the €2.3m PFT for their clients was of high importance.  There is a window of opportunity available, but you must act quickly.  

Where an individual has existing benefits in excess of €2m at 1^st January 2014, Revenue will allow them to apply for a personal fund threshold (PFT) and that threshold will apply to them instead of the SFT.  The maximum PFT available is €2.3m.  Depending on your clients’ circumstances, it may therefore make sense for them to contribute to their scheme before the end of the year in order to secure a PFT for the full value of their benefits.  Contributions made after 1^st January 2014 cannot be included in the calculation of the PFT.

The key is to act now, before the 31^st December, while the opportunity for your clients is still available. 

For further information, please contact one of our consultants in ITC Consulting:

Barry Kennelly on (01) 6148068 or at barry.kennelly@independent-trustee.com

Jennie Faughnan on (01) 6035140 or at jennie.faughnan@independent-trustee.com

Dail Drawdown

Minister Noonan went on to say “I considered that I was in a position to make these significant commitments on foot, among other things, of proposals in late 2012 from the pensions sector for changes to the Standard Fund Threshold (SFT) regime, as an alternative to standard rating of pension tax relief, which it was claimed would yield savings and tax revenues in the region of €400 million. Pending further analysis of this claim, I included a much lower figure of €250 million in the Budget 2013 arithmetic. That analysis has since revealed significant downside risks to the achievement of even this lower level of yield or savings. The estimate of the yield from the changes to the SFT regime which I announced in last week’s Budget is €120 million. These changes differ in some respects from those proposed by the pensions sector and reflect, on legal advice, the requirement to protect pension rights at the date of change. In addition, valuation factors to place a value on Defined Benefit pensions for SFT purposes will vary with the age at which the pensions are drawn down thereby improving equity within the regime.

I would not categorise my engagement with the pensions sector on this matter as a “deal”, in the manner suggested by the Deputy. However, the assessment that the changes to the SFT regime required to deliver on the Budget 2013 commitment to cap taxpayer subsidies to higher value pensions would have a considerably lower yield than originally put forward, meant that the achievement of the overall budgetary objectives (including the continuation of the reduced VAT rate for the tourism sector and to make provision for potential State liabilities which may emerge from pre-existing or future pension fund difficulties) necessitated the imposition of the additional 0.15% pension fund levy for 2014 and 2015.”

Goal Jersey Day in ITC

On Friday the 11^th of October 2013, the Independent Trustee Company Office was particularly colourful as the staff of ITC donned their favourite sports jerseys and contributed in support of a great cause; GOAL Jersey Day. 

GOAL is an Irish humanitarian aid organisation that are currently working in 13 countries in the developing world and over the past 36 years GOAL has spent in excess of €790 million in over 50 countries.  GOAL’s Jersey Day takes place in hundreds of schools, businesses and organisations every year.  This year’s Jersey Day took place in more than 1000 locations around Ireland in order to raise vital funds for GOAL’s work across the developing world.  All proceeds generated will be used by GOAL to support some of its most urgent operations across 13 countries, including Syria, where the organisation is implementing its largest ever humanitarian response programme.

For more information on GOAL’s life-saving work please visit their website at the following link: www.goal.ie.

Independent Trustee Company Budget 2014 Briefing Webinar, in Conjunction with the IBA

ITC, in conjunction with the Irish Brokers Association are hosting a briefing of the 2014 budget.  The briefing will be held via live webinar.  Aidan McLoughlin, Group Managing Director of Independent Trustee Company will focus on pension changes and members of the ITC Consulting team will cover capital taxes and retirement planning. 

Due to the popularity of our upcoming Budget 2014 Briefing, Independent Trustee Company and the Irish Brokers Association have decided to schedule a second webinar. We hope that you can join us for our second session as the first one is currently full. 

DATE: Wednesday, 16th October 2013
TIME: 10.00am - 11.30am
LOCATION: Online

CPD certificates will be circulated after the webinar.

Click here to register, places are limited so make sure that you book yours soon! If you have any queries please e-mail JustAsk@independent-trustee.com. The webinar will also be available as a recording after the event.

We look forward to your attendance.

www.independent-trustee.com

The Good, the Bad and the Ugly – the revised Revenue Pensions Manual

When you have finished cringing at the admittedly appalling juxtaposition of a classic of its genre and a somewhat unexciting piece of work, you will probably have to agree that the Revenue Pensions Manual is a critical document for anyone practising in pensions, be they providers or advisers.  And it has been recently revised by Revenue with changes being made to several chapters and new ones being written.

A detailed review of the changes is beyond the scope of this blog, but it suffices to point out that some aspects of the revised manual are, well, good, others are bad and some are a bit ugly.

First, the good. Chapter 22 on Pension Adjustment Orders confirms that either a pension adjustment order or a property adjustment order can be used for ARF and AMRF benefits.  Previously there had been a concern that a transfer of benefits from an ARF/AMRF to the ARF/AMRF of a spouse, on foot of a property adjustment order, would give rise to a distribution for tax purposes and a consequent income tax hit.

The same section of Chapter 22 confirms that the recipient spouse or civil partner can set up an ARF without qualifying for it under the Taxes Consolidation Act.  While this is to be welcomed, it does seem remarkable that Revenue has the discretion, with no legislative authority, to grant tax relief for a whole segment of society. 

As for the bad, it’s not that the changes are bad – it’s more the lost opportunity to correct some issues that are crying out for change.  For example, the manual continues to provide that a proprietary director who takes their benefits due to ill-health must dispose of their shareholding.  While there may be some justification in making the disposal of shares a condition of early retirement - to prove genuine withdrawal from service where the person is otherwise fit (though one would think that a P45 should do the trick) - there seems no reason why a person who has to retire because of ill-health should be subject to the same condition.  This requirement may have been imposed in error because Revenue systematically put the rules on ill-health in the chapter on early retirement.  And in practice Revenue even demand the sale of shares in cases of retirement due to serious ill-health - these are the cases, known as the death’s door concession, where the member only has weeks rather than months to live.

As for the ugly, and admittedly this is just a pet peeve of mine, I would have preferred it if the whole manual had been treated as a single document and someone had gone through it with a view to making it more readable or even to format it consistently.  Granted, this is not an easy task with what is essentially a very dry and rule-bound subject, and it is probably a resource issue (and that cannot make things easy), but given that it is a primary source material for an important, albeit often unacknowledged, area of most people’s lives it is a shame that there wasn’t time for someone to give it the care and attention I feel it merits.

One final comment concerns the process by which the manual is put together.  There seems to be a lack of consultation in the production of revisions to the manual.  For example, our understanding is that the Revenue officials who deal with advisers on a day-to-day basis have little input into the manual.  That is a pity because surely they are the ones who know the kind of issues that are relevant to advisers and, more importantly, pension scheme members.

And, apart from consulting those closest to the issues, perhaps Revenue might also enter into a consultation process with the industry, in the same manner practiced by the Pensions Board and the Central Bank, before engaging in further updates of such an important policy document as the manual.  Such an approach may benefit all parties involved, to include Revenue.

It would also save us from blogs with excruciating headlines.

Jeremy Mitchell

Head of ITC Consulting and Group Legal

4 Reasons to Recommend ITC

Independent Trustee Company are delighted to announce that we have been shortlisted in four categories for the Irish Pension Awards 2013. The awards, which will take place on the 27^th of November 2013, 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.

• Pensions Consultancy of the Year (ITC Consulting)
• Pension Scheme Administration of the Year (ITC)
• Communication Award (ITC)
• Innovation Award (ITC) (ITL)

We are delighted to be shortlisted in the category nominations listed above. More information on the awards can be found here.

'Lots of talk but no action to tackle pensions crisis'

Aidan McLoughlin, Group Managing Director of Independent Trustee Company, last week advised that Ireland needs a pensions minister to grapple with the crisis facing the sector.  This issue is further addressed in an article on the Independent.ie website on Thursday August 15th.  Click here to read the full article.

ITC to sponsor Young IBA Climb 2013

Independent Trustee Company are delighted to once again support the YIBA annual charity event for the fourth consecutive year. The charity of choice for 2013 is St. Vincent de Paul.

The event will take place on 20th July this year and the challenge once again is Croagh Patrick! All details of accommodation, the online donation page and registry links are available here.

Interested in climbing Croagh Patrick with your industry peers in aid of St. Vincent de Paul? Join the YIBA Committee, broker staff, insurance staff, family, friends and ITC staff on 20th July 2013 as we ascend the Reek followed by some food, drink, music and plenty of craic. No entry fee, no minimum amount to be raised- just turn up, climb and raise as much as you can for St. Vincent de Paul. It is guaranteed to be a great weekend so if you are interested in taking part, or donating to the cause, please click on the above link.

Get involved!

Public Sector Pension Changes

 

New Single Service Pensions Scheme

The Public Service Pensions (Single Scheme and Other Provisions) Act 2012 was enacted in July 2012. It will facilitate the introduction of a new Single Pension Scheme for all new entrants to the public service.  This includes the civil service, education sector, health sector, local authorities, Gardai, Defence Forces, regulatory sector and non-commercial semi state bodies. It also includes Oireachtas members and the Judiciary.

Service-based accrual of pension will be discontinued. Instead, members accumulate money amounts towards their pensions – this will be a theoretical sum calculated annually as a fixed percentage of pay and up-rated each year by reference to the CPI. These amounts will accumulate over the span of a career to produce the pension on retirement.

 

Key Feature of New Schemes:

·         The minimum public service pension age has been raised. This is being increased initially to 66 to bring it into line with the social welfare state pension age and it will then rise on a phased basis to 67 and 68.

 

·         The maximum retirement age of the scheme is set at 70, although the Government has power to vary this by order.

·         For new entrants the calculation of pensions is on the basis of “career average” earnings – this is a change from the current position where the pension is based on “final salary”. The commencement of this provision requires a Ministerial Order.

·         The overall rate of pension contributions from staff is altered – for many the contributions will remain broadly as applies at present (approximately 6.5%), but will be higher for certain occupations.

·         The scheme modifies the earnings-linking of pensions – the new scheme provides for post-retirement pension increases to be linked to consumer prices not pay.

·         The scheme reduces, but does not eliminate, fast accrual terms – these generally apply to emergency services groups such as the Gardai, members of the Permanent Defences Force and Firefighters (as well as office-holders, the Judiciary and Oireachtas members). The uniformed services will retain their early retirement age which reflects operational needs.

·         For the President, Oireachtas members, the Judiciary and the Attorney General and others who earn accelerated pension benefits at present, the new scheme acknowledges their special circumstances by providing for a doubled rate of accrual together with a doubled rate of contribution (13%) for all new entrants to these offices. It is proposed that the President continues to receive a pension on retirement from the office. Anyone who is or was an Oireachtas member prior to the enactment of the Act retains those benefits and scheme membership if there is a break in their Oireachtas tenure.

Given the current moratorium on recruitment on the public sector, it will be some time before the above changes kick in. However, there is plenty to consider when advising the next generation of public sector workers in years to come.

 

Paul Gilmer

www.independent-trustee.com/consulting

I'm an Advisor, get me out of here!

 Clients need financial planning now more than ever and Independent financial advisors are still best placed to assist clients with fulfilling their financial objectives

 

Despite this we are starting to see an increase in advisors leaving the market. There are undoubtedly many reasons for this such as mergers, retirements and unfortunately business failures, however when we looked at the Central Banks Annual report published in April we were surprised at number of revocations in 2012 versus the number of new authorisations.

2012

No of Retail Intermediaries( including authorised advisors, multi-agency intermediaries, mortgage intermediaries)	3238
No of Retail Intermediaries- Authorisations	253
No of Retail Intermediaries Revocations	797

The report also highlighted that of the 797 revoked licences, 191 related to tied insurance intermediaries.  

 

At the start of this year there were  1: 1389  advisors per head of ROI population. Interestingly when you compare this to the UK market and CF30 Authorised Advisors the figure is 1:2265. Despite this figure over 1100 UK advisors left the market in the last 18 months,  RDR has been cited as the biggest influencing factor.

 

The US is seeing a similar trend in that the advice market is contracting at -2.3% per annum.

 

Unfortunately we don’t have a crystal ball but It’s reasonable to project that numbers in Ireland will continue to contract particularly if we adopt a version of the UKs regulatory framework.  It is also reasonable to predict that those  those who opt to stay in the market will have to adapt to a changing industry but the question id like to pose to the readers of our blog is .. “ Do you think that the Irish public will benefit from less advice in the market?”

Michael Keyes

Independent Trustee Company

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

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

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