Insights Pensions and Investments


Investing Insights April 2017

Better Retirement Outcomes – It’s the Advice That Matters Most

pat-ryan-author.jpg Pat Ryan
Head of Retirement Solutions


Pension reform and consolidation of defined contribution (DC) structures is high on the agenda of the Pensions Authority in the lead up to implementation of Institutions for Occupational Retirement Provision II Directive (IORPs II) and introduction of a Universal Pensions Scheme. The current deadline is Q4 of 2018 for rationalisation of pension products and Q1 of 2019 for IORPS II.

Draft report to the minister

The Pensions Authority’s draft report on “Governance and Simplification of Supplementary Pensions” to the minister for social protection in January this year cites a clear objective being “to improve as far as possible the outcome for pension savers”.  While the authority has not yet elaborated on their definition of an “improved outcome for pension savers”, one of the key published proposals is that “the number of schemes in Ireland should be reduced from the current approximate figure of 160,000 to a medium-term target of 100 – 150 active schemes, to facilitate effective oversight”.

Who will provide advice?

At present the vast majority of the 160,000 current schemes (active and frozen) are single-member executive schemes with access to advice regarding options, features, products and related taxation treatments available from a wide panel of qualified financial advisers. If the Pensions Authority proposals go ahead and the number of schemes is somehow reduced to 150, then the question arises: Who is going to provide the advice to all the scheme members and employers?

Even before this stage is reached, other questions should be answered, including;

  • Who will provide the advice as to which schemes should seek to retain scheme status?
  • Which scheme members should switch to contract/PRSA status?
  • Who should switch to PRBs (while still an option)?

Advice opportunity

The Pensions Authority proposals are heavy on governance issues for trustees who will choose to remain in place following the proposed scheme rationalisation process, but light on the matter of providing access to advice for the huge number of pension savers likely to be affected by the proposals. As such, the next 18 months will provide a timely opportunity for pension advisers to update clients on the likely impact of the current proposals, and also carry out a review of current pension structures and arrangements. 

Some curent issues

A review can cover a number of current issues where advice is crucial and demonstrates the importance of one-to-one consultation regarding retirement saving decision making matters.

The following headings certainly should be discussed in relation to single-member executive schemes and small group schemes.

  1. The annuity trap on retirement

If a tax-free cash option looks attractive on basis of 150% of final salary. Have we thought about the possible consequences of having to purchase low-yielding annuity with rest of fund?

  1. The annuity trap on death

If a member dies in service fund proceeds plus any insured death in service proceeds in excess of 4 times salary may need to purchase annuities for spouse/dependants. Can we plan to avoid unwanted annuity purchase and retain funds on family balance sheet?

  1. Old P60s

Many owner directors had higher salaries 10 years ago than now. Can we retain record of higher earnings for funding scope / tax free cash etc?

  1. Investment review

If investment options are likely to be more vanilla in nature under future master /multi-employer trust structures. Should we put in place self-directed facilities in advance to retain widest options?

  1. Standard Fund Transfer (STF) planning

Have we a plan in place to optimise position here and which products do we need (while we still have choices)?

  1. Trusteeship

Do we need trustees for current levels of contributions? Alternatively, could we work as well with no trustees and personally owned PRSA assets?

  1. Paid up or frozen schemes

Should we clean up and transfer Personal Retirement Bonds/Personal Retirement Savings Accounts now?

  1. Spouse or co-director funding opportunity

A director client may have optimum funding structure in place but what about other directors and their employed spouses? Now is the time to put suitable executive schemes in place as access to suitable structures may be limited in future. Really it’s all about advice when it comes to planning for a better retirement savings outcome.

In light of the opportunities and changes outlined above, now is an appropriate time to review client’s retirement plans.

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There are risks associated with any pension. There is no guarantee that a pension scheme will meet its objectives. Tax laws and regulations are constantly changing, and they may be changed with retrospective effect which may have a negative impact on pension schemes. Various investment structures, vehicles and options are available to pension investors; each has its own benefits and risks, which cannot be fully outlined in this summary document. Davy Asset Management does not provide tax or legal advice. It is important to seek independent professional advice prior to making any decisions which have tax, legal or other financial implications.