Report of the Interdepartmental Pensions Reform and Taxation Group published

Brendan Burgess

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The Minister for Finance, Paschal Donohoe TD, today (Friday) welcomed publication of the Report of the Interdepartmental Pensions Reform and Taxation Group (IDPRTG). This work delivers on a number of commitments made in the Roadmap for Pensions Reform 2018 – 2023.

https://www.gov.ie/en/publication/9...artmental-pensions-reform-and-taxation-group/

The focus of the Report is on supplementary pensions and it provides conclusions and recommendations based on a thorough examination of specific pension matters, while also taking account of stakeholder views.

The Report which seeks to enhance consumer outcomes by improving regulatory oversight and reducing costs, draws on international experience in its research and reviews the current and planned domestic pension environment to make appropriate recommendations.

It also acknowledges the importance of further engagement with stakeholders to inform the next phase of this important work, including the need for transitional arrangements in some areas.

Welcoming the report, Minister Donohoe said:-

“I would like to welcome this significant piece of work, which incorporates a number of personal pension policy areas to form this comprehensive report. The IDPRTG thoroughly examined each of the key action areas allocated by the Roadmap and presents a number of relevant and practical recommendations which should help advance the goal of simplifying the supplementary pension landscape.

In essence, this work represents a building block for a significant piece of long-term structural reform in the area of supplementary pension provision. It will inform this debate and future policy making which will in turn have wider, longer-term socio economic and fiscal benefits”.

NOTES TO EDITOR


The focus of this Report is on supplementary or personal pensions. It is separate from the work of the newly established Commission on Pensions where the main focus will be on challenges in relation to the sustainability of the State Pension System.

The Interdepartmental Pensions Reform and Taxations Group (IDPRTG) was established to carry out a number of tasks set out in the Roadmap for Pensions Reform 2018 -2023. The Roadmap set out the need to promote long-term pension saving to address income adequacy in retirement, in particular for low income earners.

The IDPRTG, chaired by the Department of Finance, and includes representatives from the Department of Public Expenditure and Reform; the Department of Social Protection (DSP); the Office of the Revenue Commissioners; and the Pensions Authority, considered three general areas:


A. Reform and Simplification
- harmonisation of rules; rationalisation of the number of pension vehicles; and review of drawdown ages;

B. Costs to the Exchequer - review of the cost of funded supplementary pensions to inform decisions relating to incentives for retirement savings, which in turn underpin the development of Automatic Enrolment;

C. Review of the Approved Retirement Fund (ARF) option, including the AMRF, and consideration as to whether regulatory oversight is fit for purpose.

The Report represents a significant building block for reform in the area of personal pension provision. It makes a number of practical, focussed recommendations on the reform and simplification of the existing supplementary pension’s landscape, elements of which have developed in an ad hoc manner over a number of years. The Report also considers the cost of tax relief for pension saving; proposes the discontinuation of the Approved Retirement Fund (ARF) option on a prospective basis and replacement by a combination of in-scheme drawdown and a redesigned Personal Retirement Savings Account (PRSA) operating as a whole-of-life product. This is in line with proposed simplification measures and should enhance consumer outcomes by improving regulatory oversight and reducing costs. In terms of Automatic Enrolment the Report notes its potential to address coverage gaps and any financial incentive should seek to support this objective improve income adequacy, in particular for those on low incomes and promote long-term pension saving.

To inform its work, the Group conducted a Public Consultation process on supplementary pension’s reform. Submissions received are also available on the Department’s website. In terms of next steps it is proposed the IDPRTG will draft and agree an implementation plan; implementation of those measures that can be easily accomplished will be commenced; consideration will be given to further engagement with stakeholders around more complex actions; and implementation will be completed in line with the plan.

Other areas of the previous Government’s Roadmap being advanced by the Department of Social Protection include the introduction of an Automatic Enrolment system and the transposition of the EU IORP II Directive.
 

Sunny

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There are some good ideas alright but I would have some concerns about the implementation considering the long term planning and nature involved in pensions. Telling people that they can't access their Personal Retirement Bonds at 50 if that is what people have been planning is a bit unfair. I know they mention transitional implementation in the form of changing the rules going forward but to allow existing products run off naturally which makes sense so hopefully they will follow through.
 

GSheehy

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A summary and some comments of the IDPRTG Report (on Private Pensions) here

Looks like the PRSA (and Pension Authority via more fees) would be the big winners.

Also, Pension Authority talking about increasing fees for Occupational Pension Schemes and PRSAs here

There might be a bit of competion on AMCs for RACs and PRBs, before they are removed as product choices.


Gerard

www.prsa.ie
 

Familyman77

Registered User
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Gerard , excuse my very limited knowledge ref pensions etc. I'm paying into a scheme and eventually intended going down the ARF route as I wanted to pass on the funds to our kids when we pass. Would that option be removed if the pensions schemes were overhauled . My understanding was that a pension died with you but the ARF could be passed on ( though subject to tax )
 

SGWidow

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What does this recommendation from the report mean? It looks like a contradiction to me!

ARF assets should be treated for inheritance tax purposes in the same way as other assets where inherited by anyone other than the individual’s spouse. Both Income Tax and Capital Acquisitions Tax should apply.
 

Conan

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When ARFs were introduced by Charlie McCreevy, it was never the intention that these would be used as part of an inheritance planning scheme. After all the traditional Annuity dies with the retiree (unless an attaching Spouses Pension is included). That’s why a compulsory drawdown from the ARF was introduced (though this still does not necessarily prevent residual capital being passed on to children, but only after a surviving spouse inheriting first as an ARF).
What the IDPRTG are suggesting is that if the residual fund is passed on to children eventually, then it will be subject to BOTH Income Tax and Capital Gains Tax (a higher total tax hit than currently applies).
 

SGWidow

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Hi Conan,

I understand what you are saying but the proposal is not treating ARFs like other assets, as stated.

I inherit a house. I don't pay CAT and income tax on it....
 

Familyman77

Registered User
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130
Thanks for the explanation Conan. So would I be right in saying the reasoning for the taxation is there would have been tax relief applied initially and then the balance would be treated as CAT ( currently after €335000 per child )
 

GSheehy

Registered User
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I'm paying into a scheme and eventually intended going down the ARF route as I wanted to pass on the funds to our kids when we pass. Would that option be removed if the pensions schemes were overhauled . My understanding was that a pension died with you but the ARF could be passed on ( though subject to tax )

No, that option wouldn't be removed. What they're proposing is that that it'll be a PRSA with the current ARF rules.

If you're a member of a DB Pension Scheme it will probably work out well for you as they also talk about 'Group ARFs/PRSAs'. You could be in a pension scheme with an AMC of 0.4% and at the moment you'd have to but an 'individual' ARF with an AMC of double that (or more). If a scheme could facilitate a bulk/group ARF(PRSA) then that would put downward pressure on AMCs.

I don't think they've thought the double taxation of the ARF through and would wait until there's more detail on how that would work.
 
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