A relative has been instructed that they must now transfer their executive pension because of new IORP regulations that apply. One of the options is to transfer to a PRSA. They are now 57 Years old. What are the considerations and risks at this stage by changing ? They had anticipated continuing to subscribe monthly payments to their pension plan until the age of 61 and perhaps longer. What are the considerations ? Anything to avoid ? Any advice is welcome.
Transferring a pension because of IORP II at age 57
- Thread starter Mamamia22
- Start date
This was my analysis for those investors currently caught up in this fiasco.
The second Institutions for Occupational Retirement Provision Directive
(IORP II) was transposed into Irish law in April 2021. Under IORP II, Irish
pension schemes are required to comply with a significant number of
additional requirements which will result in a very substantial increase in
costs (of the order of €5,000pa).
As you may be aware, at the end of last year, all pension providers in
Ireland suspended One Member Executive Pension arrangement applications (also known as Small Self-Administered Schemes (SSAS)). The reason for the withdrawal of these products was the Pensions Authority’s position in relation to compliance of One Member Arrangements (OMAs) with IORP II.
The deadline for compliance of all schemes (including one member
arrangements put in force since April 2021) was the 1st of July 2022. Over
the last year, resources and structures had been put in place industry wide
to comply with the new legislation.
However, one week prior to the deadline, the Pensions Authority expressed
concerns that OMAs were unlikely to meet the compliance threshold.
As I'm sure you can appreciate, this update so close to the deadline, left
no time for pension providers to increase their compliance or establish
alternative pension options for clients and chaos ensued for the remainder
of last year for those schemes impacted by these changes.
If your scheme was established prior to April 2021, you were not
immediately impacted by these changes as a derogation was put in place for
existing schemes. However, that clock is now running down, and we need to
wind up single member schemes soon in order to avoid substantial increases
in compliance costs and we wish to ensure that we are not in the same
position as last year under pressure to resolve these issues with tight
deadlines.
At the end of last year, a replacement to Small Self-Administered Schemes
was developed by the Life Insurance providers in the form of a One-member
Retail Master Trust. This, as the name suggests, is a single member pension
scheme subject to a single master trust arrangement covering all members.
This structure has the same funding rules as a SSAS linked to salary and
service and the same retirement benefit options. However, being a retail
Life Insurance product, it has considerably less investment options and
less cost transparency compared to a SSAS.
Separately, because of the last Budget, the contribution limits to a
Personal Retirement Savings Account (PRSA) were substantially changed with
a theoretical unlimited pension contribution now possible by an employer without reference to either salary or service presenting some very
significant planning opportunities.
Options now include
1. Wind up your SSAS into a new PRSA and take advantage of the new
funding rules and retain your existing investment strategy, greater fund
choice and transparency.
2. Wind up your existing pension fund to a Buy Out Bond and make new
contributions to either a PRSA or new one-member pension arrangement with a
Life Insurance company
3. Wind up your existing pension fund to a new one-member pension
arrangement with a Life Insurance Company
It depends on your future plans and in particular how much you
might contribute to a pension in the future.
You also need to consider if the current pension has any valuable benefits such as guaranteed annuity rates which were common in the late 80s very early 90s.
The second Institutions for Occupational Retirement Provision Directive
(IORP II) was transposed into Irish law in April 2021. Under IORP II, Irish
pension schemes are required to comply with a significant number of
additional requirements which will result in a very substantial increase in
costs (of the order of €5,000pa).
As you may be aware, at the end of last year, all pension providers in
Ireland suspended One Member Executive Pension arrangement applications (also known as Small Self-Administered Schemes (SSAS)). The reason for the withdrawal of these products was the Pensions Authority’s position in relation to compliance of One Member Arrangements (OMAs) with IORP II.
The deadline for compliance of all schemes (including one member
arrangements put in force since April 2021) was the 1st of July 2022. Over
the last year, resources and structures had been put in place industry wide
to comply with the new legislation.
However, one week prior to the deadline, the Pensions Authority expressed
concerns that OMAs were unlikely to meet the compliance threshold.
As I'm sure you can appreciate, this update so close to the deadline, left
no time for pension providers to increase their compliance or establish
alternative pension options for clients and chaos ensued for the remainder
of last year for those schemes impacted by these changes.
If your scheme was established prior to April 2021, you were not
immediately impacted by these changes as a derogation was put in place for
existing schemes. However, that clock is now running down, and we need to
wind up single member schemes soon in order to avoid substantial increases
in compliance costs and we wish to ensure that we are not in the same
position as last year under pressure to resolve these issues with tight
deadlines.
At the end of last year, a replacement to Small Self-Administered Schemes
was developed by the Life Insurance providers in the form of a One-member
Retail Master Trust. This, as the name suggests, is a single member pension
scheme subject to a single master trust arrangement covering all members.
This structure has the same funding rules as a SSAS linked to salary and
service and the same retirement benefit options. However, being a retail
Life Insurance product, it has considerably less investment options and
less cost transparency compared to a SSAS.
Separately, because of the last Budget, the contribution limits to a
Personal Retirement Savings Account (PRSA) were substantially changed with
a theoretical unlimited pension contribution now possible by an employer without reference to either salary or service presenting some very
significant planning opportunities.
Options now include
1. Wind up your SSAS into a new PRSA and take advantage of the new
funding rules and retain your existing investment strategy, greater fund
choice and transparency.
2. Wind up your existing pension fund to a Buy Out Bond and make new
contributions to either a PRSA or new one-member pension arrangement with a
Life Insurance company
3. Wind up your existing pension fund to a new one-member pension
arrangement with a Life Insurance Company
It depends on your future plans and in particular how much you
might contribute to a pension in the future.
You also need to consider if the current pension has any valuable benefits such as guaranteed annuity rates which were common in the late 80s very early 90s.
Thank you for detailed reply. The current pension was with Standard Life for a few years. Before that was with Aviva I think. They would like to continue contributing and might increase payments slightly, perhaps to 40k a year or thereabouts might be possible. Is the simplest method to transfer the lot into a new PRSA. Value of pot currently is c. 300k. Which provider is recommended as no idea what the options are. They might consider working on to 65 if health permits.
Happy to have a chat with you and or them if helpful.
You might find this useful also
everlake.ie
www.Everlake.ie
You might find this useful also
How Do I Prepare for Retirement? - Everlake
Considerations for retirement planning, around 5 to 10 years from their anticipated retirement date, and how we can assist you.
everlake.ie
www.Everlake.ie
Standard Life aren't going to provide a Master Trust Executive Pension so their only option is to transfer to a Non-Standard PRSA, if they want to keep the business.
If it was with Aviva and then moved to Standard then there's probably an intermediary/advisor attached to plan. Do you know why this change was made and when?
The plan holder should be able to transfer the current value on a (charges) like-for-like basis but there's nothing to stop them looking at the market to see if there's something more competitive for the transfer and the regular contributions.
A target annual management charge (AMC) might be somewhere in the region of 0.75% pa. for that level of fund (transfer). The regular contribution might have a higher AMC, or even a contribution charge, but it will depend on the product and level of advice/service that your relative needs.
Gerard
www.prsa.ie
If it was with Aviva and then moved to Standard then there's probably an intermediary/advisor attached to plan. Do you know why this change was made and when?
The plan holder should be able to transfer the current value on a (charges) like-for-like basis but there's nothing to stop them looking at the market to see if there's something more competitive for the transfer and the regular contributions.
A target annual management charge (AMC) might be somewhere in the region of 0.75% pa. for that level of fund (transfer). The regular contribution might have a higher AMC, or even a contribution charge, but it will depend on the product and level of advice/service that your relative needs.
Gerard
www.prsa.ie
Do you think it’s best to stay or move ? Initially the business was run as a trade but then moved to a limited company. It was moved to Standard Life a few years ago after receiving advice to take out an executive pension. Obviously they are anxious to avoid big fees. What is a non standard PRSA ? This person will not have an entitlement to a full state pension in retirement so needs to get a good replacement for their fund.
In this particular case I don't think it's a good idea make that call.
I'd be surprised if the person that advised them to take out the executive pension initially isn't back in contact with them soon. Unless it's an agent that is no longer in the business and it's an orpan policy that Standard are administering (?). Your relative could initiate the contact now as all companies are going to be very busy mid-year with all these changes.
Maybe go with the relative to that meeting, take the information/recommendation away and do some more research at that stage. There isn't any disclosure requirement on executive pensions so, if the information on fees/charges isn't disclosed, ask for it in writing. There should also be some level of written reasons why the particular course of action is being recommended.
A Non-Standard PRSA doesn't have the 1% Annual Management Charge limit, so can be more expensive.
Gerard
www.prsa.ie
I'd be surprised if the person that advised them to take out the executive pension initially isn't back in contact with them soon. Unless it's an agent that is no longer in the business and it's an orpan policy that Standard are administering (?). Your relative could initiate the contact now as all companies are going to be very busy mid-year with all these changes.
Maybe go with the relative to that meeting, take the information/recommendation away and do some more research at that stage. There isn't any disclosure requirement on executive pensions so, if the information on fees/charges isn't disclosed, ask for it in writing. There should also be some level of written reasons why the particular course of action is being recommended.
A Non-Standard PRSA doesn't have the 1% Annual Management Charge limit, so can be more expensive.
Gerard
www.prsa.ie
Ok. Yes the advisor is quite busy. I suppose the queue for advice must be quite long. You raise the question of fees on this executive pension. He will ask as to fees. He is just totally unsure what product to select from here on in. What are Standard Life likely to be offering and what should he ask about apart from fees.