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
